Tag payroll taxes florida

As if Obamacare isn’t bad enough, now small employers have to worry about the complex issue of rising unemployment insurance and tax rates. Formerly a rather simple calculation, things have happened in several states that make things complicated.

Just what an employer needs, another thing to worry about.

It is a justified headache to worry about, too. Failure to properly pay unemployment taxes in a timely and correct fashion can result in penalties, interest and fines that far exceed the original amount owed.

So why the confusion?
Many states are not paying back loans they have drawn from the federal unemployment fund per the original Federal Unemployment Account act. In fact 19 states and the US Virgin Islands currently have loan balances (see the chart below)
The Federal Unemployment Account (FUA) provides for a loan fund for state unemployment programs to ensure a continued flow of benefits during times of economic downturn. According to the U.S. Department of Labor, Employment and Training Administration, 19 states and the U.S. Virgin Islands currently have loan balances in their Trust Fund accounts.

As of January 3, 2013, the most recent balances of outstanding state loans from the FUA are:

Source: National Conference of State Legislatures

Why is This Raising our Rates?
Previously, the FUTA, or Federal Unemployment Tax Act, was assessed on the first $7,000 of each employees wages. That number may be raised to $8,00 or $8,500, (depending on who you talk to) largely because the states have not paid back their loans. There is also another negative effect from this. The Standard Federal Tax Rate is set at 6.0% (formerly 6.2% but the extra .2% was repealed in 2010). This is high, and would be an excessive burden on employers. To counter this, the federal government has been extending a discount of 5.4% to all those states that are not in arrears. That makes the national rate 0.6%. However, since states are now “raiding” the unemployment funds for various expenses, including but not limited to unemployment benefits, they find themselves unable to pay back the loans. The discount is being reduced by a rate of 0.3% per year to all those states in arrears.

In Florida for example, 2012 marked the second year in arrears, so the FUTA rate in Florida for 2012 is set to 1.2%. Since it does not appear likely that Florida will pay back the loans this year (or any year for that matter) we can expect the FUTA rate to keep increasing until it reaches the maximum of 6.0%.

Is it a tax or insurance?
Good question. Since it is required by ALL employers, does it make a difference? Employers mustpay it: to the state quarterly (usually) and to the Federal fund annually (form 940). The checks are written to the IRS or the state equivalent so for working purposes, call it a tax.

What can an employer do about it?
The most important thing to do about it is to stay on top of it, and make sure that there are enough funds to pay the correct amount of unemployment taxes at the end of the fiscal year, when filing the 940. This is best served by consulting with an expert in the field, or making it someone else’s problem.

Who are the experts?
CPAs are trained in tax laws. Most of them do an excellent job of making sure an employer is in compliance.

Wait, How Can an Employer Make it Someone Else’s Problem?
More and more employers are placing their employees in a co-employment situation with a PEO or Employee Leasing company that shares a large part of the responsibility of tax compliance. In this way they know they have an expert as a partner.

For more information on this subject please use the contact form below:

Name

Email

Inquiry

Verify that you are a real person 🙂

It seems that payroll companies are on the rise, and more and more they are looking for workers’ comp coverage for their clients.

Wouldn’t your payroll clients like to be free of the hassle of yearly audits?
Are they sick of massive deposits and big down payments?
Are they frustrated because they can’t find coverage?

We may be ably to help your payroll company with our “Pay As You Go” workers’ comp program. Premiums can be paid as earned, by rating the current payroll against the correct comp codes. Audits can be minimized, made less painful or possibly done away with completely.

This program is designed for payroll companies and their insurance agents. Please have your insurance agent contact us to find out about this income stream that is being left by the wayside.

Name

Email

Inquiry

Verify that you are a real person 🙂

This article is an outline of a talk that our CEO gives to various groups. Please contact us if you are interested in such a talk

Myth # 7: “I don’t need to be on my payroll – I can take distributions.”
Our CPAs have always advised us that even though Subchapter S corps and LLCs allow “distributions” to owners, the IRS expects you to run a payroll and use those distributions for special or unusual circumstances. A failure to run a payroll regularly can “raise a flag” on your return, which may make you subject to an audit.

Myth # 6: “If I have Workers’ Comp insurance claims don’t affect me.”
While it is true that in most cases the full burden of the claim falls upon the insurance company, it is important to remember that an “experience modifier” follows your corporation or business entity throughout its lifetime. Excessive claims can raise this modifier, which will correspondingly raise your workers’ comp premium.

Myth # 5: “A payroll service will relieve me of the worry of paying payroll taxes.”
Some payroll services, especially PEOs, who legally become the employer of record, can certainly mitigate the liability associated with payroll taxes. With a standard payroll service however, it is your FEIN that goes on the return and hence you will be audited if there is a problem. It is true that a reputable payroll service will “stand by your side” at the audit but you will still have some, if not all, of the responsibility. In a PEO situation the lion’s share of the liability rests with the PEO since it is their FEIN that is on the return.

Myth # 4: “Unemployment Claims do not cost me time or money.”
This gets monitored much the same way workers’ comp claims do. The state will keep a record of your claim history and can adjust your rate up or down on an annual basis. Certainly managing your employees properly and terminating them according to correct procedures will reduce your unemployment rate exposure.

Myth # 3: “We have our posters up so we are in compliance.”
Oh really? How old are those posters? Have you checked with all the state, federal and local authorities? Wouldn’t it be nice to have someone do that for you?

Myth # 2: “I’m exempt from Workers’ Comp because I don’t have enough employees.”
This is a great misunderstanding. NO ONE is exempt from Workers’ Comp in the United States of America. If an employee is injured on the job it falls under the Workers’ Compensation Act and the employer is responsible for all medical, legal, and administrative expenses involved with the claim, as well as paying lost wages from time out of work, typically two-thirds of the normal wage.

In most states, you may apply for an Insurance Exemption, which allows you to be self-insured. This depends on the number of employees. In Florida it is 3 or fewer employees besides the owners, or 1 employee in the construction field. You may be “exempt” from having an insurance policy but you still are subject to workers’ comp.

Myth # 1: “I don’t have employees, all my people are 1099 contractors.”
There is no doubt that many people in a contracting situation legally and are truly 1099 contractors. However, this is one of the most widely abused categories in the employment arena today. The 1099 is meant for those people that are truly independent, NOT just a way to avoid paying taxes.

Myth # .5: “I can do it without professional help.”
Good luck with that 🙂

We hope you will view us as a resource. You probably don’t need our services now, but you want the firetruck to know how to get to your house! Some of you might have even “smelled some smoke” while we were talking …