SECTION II. - Federal Unemployment Tax (FUTA)

Unemployment insurance is financed by both federal and state payroll taxes. The Federal Unemployment tax is used to finance all administrative expenses of the federal/state unemployment insurance system and the federal costs involved in extended benefits. The Kansas unemployment tax is used only for the payment of benefits to qualified unemployed workers.

Most employers liable for Kansas unemployment tax are also liable for Federal Unemployment Tax (FUTA):

If your employment is agricultural, you are liable if you employ 10 or more workers in any portion of 20 different weeks in a calendar year, or have a payroll of $20,000 or more cash wages in any calendar quarter.

If your employment is domestic service, you are liable if you have a quarterly payroll of $1000 or more cash wages in any one calendar quarter during the current or previous calendar year.

If your employment is in a business other than agricultural, domestic, or nonprofit organization exempt under Sec. 501(c)(3) of the Internal Revenue Code, you are liable if you have one or more employees who work for any portion of a day in 20 different weeks in a calendar year, or if your gross payroll for any calendar quarter is $1,500 or more.

Nonprofit organizations exempt under Sec. 501(c)(3) and governmental entities are not subject to the Federal Unemployment Tax Act.

Under the current Federal Unemployment Tax Act, a payroll tax of 6.2 percent is levied on the first $7,000 annual earnings paid each employee. As an enticement for states to maintain their own unemployment insurance programs, federal law provides a tax credit offset of 5.4 percent for contributions paid timely into an approved state unemployment insurance fund.

All employers in Kansas, regardless if their experience rate is lesser or greater than 5.4 percent, are allowed the 5.4 percent credit.

Form 940, Employer's Annual Federal Unemployment Tax Return, must be filed with the Internal Revenue service on or before January 31, following a year when liability requirements are met. Federal Unemployment tax should be computed on a quarterly basis to determine if a deposit is required for any of the first three quarters. To compute, multiply that part of the first $7,000 of each employee's annual wages paid during the quarter by .008. If the tax due is more than $100, it must be deposited by the end of the next month. If the tax due is less than $100, no deposit is required, but it must be added to the next quarter(s) in determining the $100 threshold.

EXAMPLE:  If the tax for each of the first two calendar quarters is $60, no deposit is required for the first quarter. However, at the end of the second quarter a deposit is required because the total undeposited tax is now more than $100 ($60 x 2 = $120). If the tax for the third quarter is more than $100, a deposit is required.

The Internal Revenue Service penalizes an employer for untimely payment of state contributions by reducing the allowable offset credit. To insure maximum credit, an employer should make certain that those contributions paid into the state unemployment fund are paid timely.