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What is FUTA tax rate for new Calif household employer (UI = 3.4%)?

  
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Subject Author Date
What is FUTA tax rate for new Calif household employer (UI = 3.4%)? nomail1983 01-16-2007
Posted by nomail1983 on January 16, 2007, 4:13 am
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 My mother will register as a Calif new household employer
this year. The Calif UI tax rate will be 3.4%. What will
the FUTA tax rate be?

I know that the max FUTA tax rate is 6.2%, and I know she
gets credit for (at least) the 3.4% for the Calif UI tax.
So I believe her FUTA tax rate would be at least 2.8%.

But according to instructions for Sched H (1040) et al, she
might receive additional credit based on her "state
experience rate". That might increase her credit to the
maximum of 5.4%, reducing the FUTA tax rate to 0.8%.

Is that to be expected?

Can anyone tell me what the "state experience rate" is and
how it is determined, conceptually?

According to instructions, she would call the appropriate
Calif employment agency to learn what her "state experience
rate" is. But that is not possible, I presume, because she
has not registered as a household employer.

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Posted by Paul Thomas, CPA on January 16, 2007, 7:59 pm
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> My mother will register as a Calif new household employer
> this year. The Calif UI tax rate will be 3.4%. What will
> the FUTA tax rate be?
>
> I know that the max FUTA tax rate is 6.2%, and I know she
> gets credit for (at least) the 3.4% for the Calif UI tax.
> So I believe her FUTA tax rate would be at least 2.8%.
>
> But according to instructions for Sched H (1040) et al, she
> might receive additional credit based on her "state
> experience rate". That might increase her credit to the
> maximum of 5.4%, reducing the FUTA tax rate to 0.8%.
>
> Is that to be expected?

If she pays timely SUTA tax and forms, the federal rate
drops to .8%.

That's of course, all computed on Schedule H.

> Can anyone tell me what the "state experience rate" is and
> how it is determined, conceptually?
>
> According to instructions, she would call the appropriate
> Calif employment agency to learn what her "state experience
> rate" is. But that is not possible, I presume, because she
> has not registered as a household employer.

Then it would generally be the entry rate for new employers.
The state may have a rate for household employers that is
different from the rate for all other commercial/business
employers.

--
Paul Thomas, CPA
paulthomascpapc@bellsouth.net

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Harlan Lunsford on January 18, 2007, 4:20 am
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nomail1983@hotmail.com wrote:

> My mother will register as a Calif new household employer
> this year. The Calif UI tax rate will be 3.4%. What will
> the FUTA tax rate be?
>
> I know that the max FUTA tax rate is 6.2%, and I know she
> gets credit for (at least) the 3.4% for the Calif UI tax.
> So I believe her FUTA tax rate would be at least 2.8%.
>
> But according to instructions for Sched H (1040) et al, she
> might receive additional credit based on her "state
> experience rate". That might increase her credit to the
> maximum of 5.4%, reducing the FUTA tax rate to 0.8%.
>
> Is that to be expected?
>
> Can anyone tell me what the "state experience rate" is and
> how it is determined, conceptually?
>
> According to instructions, she would call the appropriate
> Calif employment agency to learn what her "state experience
> rate" is. But that is not possible, I presume, because she
> has not registered as a household employer.

Assuming all California U/i taxes are paid on time, she may
expect a rate of only 0.8 % (.008)

ChEAr$,
Harlan Lunsford, EA n LA

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by nomail1983 on January 18, 2007, 4:20 am
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Paul Thomas, CPA wrote:

> If she pays timely SUTA tax and forms, the federal rate
> drops to .8%.
> That's of course, all computed on Schedule H.

By gosh and by golly, you're right! I shoulda worked
through the computation in Sched H instead of simply reading
the Pubs and instructions.

Pub 926 says (emphasis added): "The FUTA tax is 6.2% [...].
However, you __may_be__ able to take a credit of __up_to__
5.4% against the FUTA tax, resulting in a net tax of 0.8%".

Hmm, "may be" and "up to". I wonder under what conditions I
can only take less? (Rhetorical.)

I did not feel that the language of Pub 926 was dispositive,
although it does mention the exception for late payment of
state unemployment tax.

So I looked at the instructions (sigh, not the form) for
Sched H. It says (emphasis added): "Credit
__for_contributions__ paid to state. You __may_be__ able to
take a credit of __up_to__ 5.4% against the FUTA tax,
resulting in a net tax rate of 0.8%".

Hmm, there's "may be" and "up to" again. Since the credit
is "for contributions paid to state", it seemed to me that
it is "up to" only the amount paid to the state. And the
conditions under which I could take even that much credit
were based on tardiness or how much wages were exempt from
state unemployment tax.

But I still was not certain of my interpretation. So I
consulted Pub 15. It says (emphasis added): "Generally,
you can take a credit against your FUTA tax __for_amounts__
__that_you_paid_into_state_unemployment_funds__. This
credit __cannot_be_more__ than 5.4% of taxable wages. If
you are entitled to the maximum 5.4% credit, the FUTA tax
rate after the credit is 0.8%".

Well, I thought, that seems pretty clear. If I pay less
than 5.4% state unemployment tax, I can only get credit "for
amounts [...] paid".

Wrong! Go figure! (No pun intended; well maybe ;->.)

Anyway, Paul, thanks very much for pointing out that the
computation in Sched H disposes the questions clearly.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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