When a person performs services for you and you are considered an "employer," then you may be subject to the federal unemployment tax under the Federal Unemployment Tax Act (FUTA), one of the three employment taxes that an employer would need to pay. (Other two being Federal Income Tax Withheld and Social Security Tax). Employers who fail to pay this tax may be subject to interests and penalties.
Generally, a person is considered an "employer" for FUTA if he/she meets either of the following two tests:
An example of meeting the first test is as follows:
J employs A for one day per week for 2 weeks in January, B for one day per week for 16 weeks in June, and C for one day per week for 2 weeks in August. J has satisfied the "1 " in 20' test.
However, special rules apply for "employers" of agricultural workers and domestic workers (e.g. a maid).
Almost all types of taxpayers, such as an individual, a partnership, a corporation, a s-corporation, a limited liability company, a trust, and an estate, need to pay federal unemployment tax if it applies. The only exception is that tax-exempt organizations are not subject to FUTA.
An employer of agricultural workers is subject to FUTA when he/she:
An employer of domestic workers is only subject to FUTA if he/she:
Note that wages must be in cash, or it will not count.
The federal unemployment tax for 2005 is 6.3% on the lesser of:
Employers are entitled to a credit for state unemployment fund contributions. Usually, the net federal unemployment tax rate after applying such credit is 0.8% for 2005.
Tax laws are complex and ever-changing. Although there are various tax preparation softwares on the market that may help you with your tax problems, they cannot provide the same level of service that an experienced and knowledgeable tax attorney can. If you are unsure about your payroll taxes or you need someone to represent you before the IRS, a tax attorney can help you.
Last Modified: 10-28-2011 02:56 PM PDTLaw Library Disclaimer
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