Federal Unemployment Tax (FUTA) Credit Reduction for Missouri in 2014 is 0.0%

At the time this article was originally written, January 2014, a credit reduction was expected.  But Missouri managed to pay its debts to the Federal Government on time so the credit reduction was removed; or reduced to 0.0.  It appears that the credit reduction will be 0.0 in 2015 as well.

In 2014 the FUTA Credit Reduction in Missouri is increasing from .09 to .12.

Q. What does this mean for Missouri employers?

It means that you will pay a little bit more in FUTA (Federal Unemployment Taxes) to the federal government this year.

Q. What is going on and why did it increase?

Every year states borrow money from the federal government to pay unemployment to unemployment recipients.  If a state fails to repay all the money they borrow, then the state is subjected to a “credit reduction” the result of which is that employers in the state pay more unemployment tax to the federal government.

Q. How is an employer’s unemployment tax to the federal government calculated?

The federal unemployment tax rate is 6.0% for 2014, as it was in 2013.  Employers pay the tax on the first $7,000 of salary for each employee each calendar year.  This would come to $420 per employee each year.

However, since employers also pay an unemployment tax to the state, the federal government allows employers to deduct 5.4% from the 6.0%.  This 5.4% is a “credit”.  Thus the amount paid in unemployment tax to the federal government becomes $42 per employee each year.

However, employers may only deduct 5.4% when their state has paid all of its borrowed money back to the federal government.  When states have not repaid all the borrowed money, they are subjected to a reduction of this 5.4% credit and this is called the “credit reduction”.

Q. So how much will Missouri employers pay in federal unemployment taxes in 2014?

In Missouri, for 2014, the credit reduction is 1.2%.  So the 5.4% credit is reduced by 1.2% becoming a 4.2% credit.  Subtracting the 4.2% credit from the 6.0% federal unemployment tax rate gives us a result of 1.8% for the tax rate we pay to federal unemployment.  So in Missouri for 2014, the unemployment tax we pay to the federal government on the first $7,000 of salary is ($7,000 * 1.8% =) $126.00.

 Q. How does the federal government determine the amount of the credit reduction?

The first year that a state fails to repay the federal government the credit rate is .03%.  The rate increases by .03% every year until the state has fully repaid the federal government.  Since this is the 4th year that Missouri has been unable to repay all of the loans the rate is up to 1.2%.  About half of the states have been unable to repay their loans since the recession began (http://en.wikipedia.org/wiki/FUTA_credit_reduction).

IRS Documentation of FUTA taxes: http://www.irs.gov/pub/irs-pdf/i940.pdf

Make note of FUTA Tax Filing Changes for 2012!

I was unpleasantly surprised to learn today that the FUTA tax rate changed mid-year of 2011 and I didn’t know about it. Fortunately, this did not affect my 2011 tax filings in any way because I had no new employees and had already incurred the maximum unemployment tax for the year because my taxable earnings prior to July 1, 2011 exceeded $7,000 .
I learned this when I went to fill out Federal form “940 for 2011: Employer’s Annual Federal Unemployment (FUTA) Tax Return”. A google search brought me to a URL confirming the change mid-year http://bkl-cpa.com/news/2011/06/29/futa-tax-rate-change-effective-july-1-2011/).
When you fill out this form, make sure to include 401k contributions made to the employee in line 3, then deduct those contributions in line 4. Regardless of your numbers, there is a good chance that line 7a will end up with a balance of $7,000.00 (if you are self-employed). And if you worked all of last year, it is likely that line 7b is $7,000.00, 7c is $56.00, 7d is $0.00, 7e is $0.00, and line 8 is $56.00.
Since I live in Missouri and do not have a payment to submit, I send this completed form to
Department of the Treasury
Internal Revenue Service
Ogden, UT 84201-0046
By February 10, 2012 (by January 31, 2012 if you need to send money)
http://www.irs.gov/pub/irs-pdf/f940.pdf (form online)
http://www.irs.gov/pub/irs-pdf/i940.pdf (instructions online)

Filing your Missouri Annual Report

Don’t forget to file your state’s Annual Report.  Maybe this isn’t needed in every state, but you do need to do so every year in Missouri.  You can also file for two years at a time.  The cost is $20 per year and it takes less than 10 minutes if you have previously filed.  Go to www.sos.mo.gov/business to file online.  If you don’t file on time the fee goes up to $35.

I think that your deadline to file is on a yearly basis since you first incorporated.  So the month you incorporated determines your deadlines.  Log in to find out your deadlines.

W-3 form for the state is due February 28th, 2011

If you are incorporated in the state of Missouri then you need to file the MO W-3 by the end of this month.  This is a very simple form to fill out, especially for those of us self-employed S Corporations.

I tried to verify that my federal W-3 was complete when I entered my W-2 information online but found the federal web site to have a javascript error preventing me from logging in.  Doing business online is very handy, but it gives us further reason to avoid procrastination, because if you wait to the last minute, and you find an online site is not functioning, you are much more likely to fail to complete your forms on time.

Missouri Consumer Use Tax form for businesses to file

I received a letter from the state of Missouri this week asking me to send in a form (53U-1) for my Consumer’s Use Tax for years 2007 and 2008.  I suspect I will get a similar request for such a form some day for years 2009 and 2010.  Getting letters like this always makes me a little nervous.  I wonder if I was not filing something I should have been filing and am about to be hit with huge penalties.

As it turns out, I don’t need to send in the form because I am exempt.  But I do need to send them a letter to let them know that I don’t need to send in the form.  So I made a copy of their letter, put my X in a few check boxes, and mailed it back to them.

Who should be filing this form?  It is for businesses that buy products wholesale (without paying sales tax) in order to resale them to other clients.  So if I purchased a new computer and used my Tax ID to excuse myself from paying sales tax, and then sold that computer to one of my clients, I should be filling out this form.  Even then, you only need to do this if you bought more than $2,000 worth of stuff in one year.

Changes to your first paycheck to yourself in 2011

I created my first paycheck of 2011 for myself today. The first paycheck is always the most difficult in a year because I need to identify the tax changes that affect it.

The first change for 2011 is that I had to reduce the amount of Social Security withheld from the employee portion of my paycheck from 6.2% of my base salary to 4.2%. This does not affect the amounts I withhold for federal withholding, medicare, or Missouri state withholding.

The second change for 2011 is to change the amount of unemployment insurance tax to withhold for the state of Missouri. My Missouri unemployment tax changes every year and I consider it to be a major nuisance for several reasons:

1. It is complicated to calculate
2. I never correctly guess how the state will round to the penny which results in a check for a one penny refund from the state.
3. I can’t just pay it all at once for the year, I have to pay it for the first 3 to 6 months until the $7,000 gross wages limit is reached.
4. It will never benefit me because I am self-employed and will never file an unemployment claim against myself.

I keep all the other factors of my paycheck the same for 2011 and as I have for every monthly paycheck for the last 3 years. By keeping my salary, withholding, and 401k deductions the same, my monthly, quarterly, and federal filings take less time to prepare because I can use the same numbers from previous filings. I highly recommend that you pay yourself the exact same amount with the same deductions on a regular basis just to reduce the time you need to spend making calculations and also because fewer calculations means fewer chances for errors.

Now is the time to pay those 4th Quarter Estimated Taxes (1040ES)

I just finished writing a check to the Department of Revenue in Missouri to make a quarterly estimated personal tax payment (MO 1040ES).  I made a similar online at www.eftps.com for a federal quarterly estimated tax payment (1040ES).  The first year I was in business for myself I didn’t make estimated personal tax payments, because I withheld extra taxes from each paycheck instead.  However, I made a filing error that first year and the penalty for errors is a percentage of the amount you are paying.  Had I been withholding less, and using estimated tax payments from my personal account the penalty would have been lower.  So I made the change the next year.

You may wonder why I even both to “withhold extra”, or make estimated tax payments.  I am doing this because I pay myself a salary, but my salary is less than my revenue as a business.  At the end of the year, if my salary and other business expenses is less than my total revenue, that total revenue will be converted to profit for the year (because my business is an “S” Corporation).  I will then owe taxes on that profit.  To reduce the amount of taxes you may have to pay in one large amount on this profit, you can do one of two things, withhold more throughout the year from each paycheck, or make estimated tax payments, usually quarterly.  I prefer the latter as I have learned, the hard way, that it can reduce penalties from filing errors.

Tax and Accounting checklist for the new year

The first business task I perform each year is to copy my checklist from the previous year and make the necessary modifications.  Here is my basic checklist for 2011.  I also have all of these items set up with reminders in Outlook.  Hopefully by having both the reminder and the checklist I won’t forget to do any of them.

Begin Date	Due Date	Done	Tax Authority	Freq.	Action
1/1/2011	1/15/2011		Federal	Monthly	WH, MD, and SSN Tax payments for DEC Last Year
1/1/2011	1/31/2011		Federal	Annual	Federal W2 to employee (me)
1/1/2011	1/15/2011		Missouri	Quarterly	Individual Estimated Income Tax (MO1040-ES)
1/1/2011	1/15/2011		Federal	Quarterly	Individual Estimated Q4 last year  (1040-ES)
1/1/2011			Lee’s Summit	Annual	Register Business Section 28-30
1/1/2011	1/31/2011		Federal	Quarterly	Tax Report for Q4 last year (941)
1/1/2011	1/31/2011		Missouri	Quarterly	Q4 Last Year WH Report (MO941) and payment (combined online)
1/1/2011	1/31/2011		Missouri	Quarterly	File and Pay MO Unemployment ($0) Q4 last year
1/1/2011	1/31/2011		Federal	Annual	FUTA “FORM” 940 for last year
2/1/2011	2/15/2011		Federal	Monthly	WH, MD, and SSN Tax payments
2/1/2011	2/28/2011		Federal	Annual	W3 to SSA
2/1/2011	2/28/2011		Missouri	Annual	MO-W3
1/1/2011	3/1/2011		Missouri	Annual	File Annual Report (online)
2/1/2011	3/15/2011		Federal	Annual	Business Taxes Year last year (1120s).  K-1 to me
1/1/2011	3/15/2011		Missouri	Annual	MO1120s
3/1/2011	3/15/2011		Federal	Monthly	WH, MD, and SSN Tax payments
4/1/2011	4/15/2011		Federal	Quarterly	Individual Estimated Q1 This year (1040-ES)
4/1/2011	4/15/2011		Missouri	Quarterly	Individual Estimated Income Tax (MO1040-ES)
4/1/2011	4/15/2011		Federal	Monthly	WH, MD, and SSN Tax payments
1/1/2011	4/15/2011		Federal	Annual	Individual 1040
1/1/2011	4/15/2011		Missouri	Annual	Missouri 1040
1/1/2011	4/15/2011		Kansas	Annual	Kansas 1040
4/1/2011	4/30/2011		Federal	Quarterly	Tax Report for Q1 (941)
4/1/2011	4/30/2011		Federal	Annual	FUTA (940) – $56
4/1/2011	4/?/2011		Missouri	Quarterly	File and Pay MO Unemployment
4/1/2011	4/30/2011		Missouri	Quarterly	Q1 WH Report (MO941) and payment (combined online)
5/1/2011	5/15/2011		Federal	Monthly	WH, MD, and SSN Tax payments
6/1/2011	6/15/2011		Federal	Monthly	WH, MD, and SSN Tax payments
6/1/2011	6/15/2011		Missouri	Quarterly	Individual Estimated Income Tax (MO1040-ES)
6/1/2011	6/16/2011		Federal	Quarterly	Individual Estimated Q2 (1040-ES)
7/1/2011	7/15/2011		Federal	Monthly	WH, MD, and SSN Tax payments
7/1/2011	7/31/2011		Federal	Quarterly	Tax Report for Q2 (941)
7/1/2011	7/31/2011		Missouri	Quarterly	Q2 WH Report (MO941) and payment (combined online)
7/1/2011	7/?/2011		Missouri	Quarterly	File and Pay MO Unemployment
8/1/2011	8/15/2011		Federal	Monthly	WH, MD, and SSN Tax payments
9/1/2011	9/15/2011		Federal	Monthly	WH, MD, and SSN Tax payments
9/1/2011	9/15/2011		Missouri	Quarterly	Individual Estimated Income Tax (MO1040-ES)
9/1/2011	9/15/2011		Federal	Quarterly	Individual Estimated Q3 (1040-ES)
10/1/2011	10/15/2011		Federal	Monthly	WH, MD, and SSN Tax payments
10/1/2011	10/31/2011		Federal	Quarterly	Tax Report for Q3 (941)
10/1/2011	10/31/2011		Missouri	Quarterly	Q3 WH Report (MO941) and payment (combined online)
10/1/2011	10/?/2011		Missouri	Quarterly	File and Pay MO Unemployment ($0)
11/1/2011	11/15/2011		Federal	Monthly	WH, MD, and SSN Tax payments
12/1/2011	12/15/2011		Federal	Monthly	WH, MD, and SSN Tax payments
12/1/2011	1/15/2011		All	Annually	Identify tax and reporting changes for next year.

You need to change your payroll tax before the first salary payments of 2011

The Federal Government has reduced the employee portion of Social Security Taxes to be witheld from 6.2% to 4.2% in 2011.  If you are self-employed as a corporation and are paying yourself a salary you will begin withholding 10.4% instead of 12.4%.  The employer portion remains at 6.2%, but the employee portion is reduced from 4.2%.

Source: http://wiki.answers.com/Q/What_is_the_2011_maximum_social_security_withholding_amount