Education and Finances

Today is a special edition targeted to those who are still in the education system.  The consensus this time of year is “spring fever” and “I can’t wait until summer is here.”  Before you start the 2-month brain checkout however, let’s keep some things in mind.

One of my favorite bloggers, Jeff Thredgold, publishes a regular weekly economic new update.  While I don’t always agree with his thoughts, it is fascinating to read the updates of statistics published by the government relating to all facets of our economy.  In the most recent edition, he discusses the job market and the associated unemployment rate.  One of the facts published is:

“It comes as no surprise that one’s educational attainment typically has a direct impact on employment. The jobless rate for those workers with less than a high school diploma was 14.5% in March. For those with a high school diploma, but no college, the rate was 10.8%.

For those workers with some college or an Associate’s degree, the jobless rate was 8.2%. For those with a Bachelor’s degree and higher, the average unemployment rate was 4.9%.”

My blog topics focus mainly on personal finance, tax and accounting.  In this case though, economic statistics point out a very important concept.  The best way to gain control over your finances is through education.  Many other studies promote the fact that educated employees tend to earn higher incomes over their lifetime as well.

A combination of education, higher wages, less job loss and responsible financial moves can lead to a happier and more successful life.  Those that look forward to getting out of high school and never going back to school are setting themselves up for a much more difficult life financially.  As we move ever closer to the close of another school year, keep these facts in mind as you make plans for the future.  The financial and educational choices made early in life have dramatic effects on the later years of life.

You can sign up to receive the weekly economic news for free from essentially any page on Mr. Thredgold’s website.

Where Do I Pay the Unemployment?

Q. I have been asked to find regulations similar to the state withholding reciprocity rules for unemployment.  I have a payroll person at one of our business units, who every time an employee is on a temporary assignment in another state she changes their SUI state to that state.  This is causing big issues not only for the employee but for those of us who process the SUI returns.  Any help you may be able to provide will be greatly appreciated.

A. The answer to your question can actually be found in the unemployment statutes of the states involved in your scenarios. Generally, all states but Minnesota follow guidelines that establish a reciprocity-like arrangement for employers where unemployment tax is paid to the state where the employee works. If the employee works in multiple states, then UI tax is paid to only one state. The general order for choosing the UI state is (check with the states involved for specifics):

1. Where does the employee perform most of his/her work?
2. Where is the employee based?
3. From which state is the employee’s work controlled?
4. If none of the above apply, use employee’s residence state.

The state you select doesn’t change unless the employee is making a permanent move in which case there are predecessor state rules involved.  This is a very common question for employers who operate in multiple states.

I Can’t Get An Unemployment Check

Q. I was fired from my job last week. When I tried to file for unemployment, they said I couldn’t claim because I was self-employed.  I thought unemployment was for this reason.  What do I do?

A. Unemployment benefits are designed for employees who are unemployed, under-employed, downsized, rightsized, or fired.  If you were actually an employee, then your employer should have been paying unemployment tax to the state where you performed your duties.  You would then be given benefits by the state if one of the above-listed events actually occurred.

If you are actually a contractor or self-employed, then you are really out of luck.  The problem with your post is that it looks like you assumed you were an employee, but were classified as self-employed.  This may be a sneaky trick by your former employer not to pay taxes for your situation.

There are specific guidelines as to what actually qualifies as an employee vs. and independent contractor.

• Did the establishment provide you an office?
• Were you required to supply your own tools?  This could mean anything from a computer to actual tools used by laborers.
• Were you issued a 1099 at the end of the year instead of a W-2?  While this one doesn’t actually prove anything, it does show the intent of the hiring organization.
• Who controlled the work you performed?
• Who set your hours?

Companies can get into all kinds of trouble for taking the easy route and calling their employees something else.  Check with your State’s Department of Labor for details.

FUTA and SUTA

Q. As a small business owner looking forward to processing my own payroll, I am curious about FUTA and SUTA and how the calculation works.

A. First, congratulations on taking the step toward hiring employees. It can be both a good thing, because you are growing, and a bad thing, because employees bring new challenges to the business. To get started, let me say that all discussions regarding federal level taxes and withholdings that are the responsibility of the employer can be found in IRS Publication 15. FUTA is also discussed there.

FUTA stands for “Federal Unemployment Tax Act” and is a tax paid on the wages of employees by the employer. The tax is 6.2% of employee wages up to $7000 per employee. That equates to $434 per person per year. There is relief from this rate built in to the calculation. Per Pub 15, “Generally you can take a credit against your FUTA tax for amounts that you paid into state unemployment funds”. The credit is up to 5.4% which leaves your FUTA tax rate at .8% or $56 per employee per year. The credit has some stipulations and your state has to be in the good graces of the federal government for that to work. New York employers lost this credit a couple of years ago. Generally, if you pay your state unemployment tax on time, you get the credit.

SUTA is State Unemployment Tax Authority. It is essentially the state version of the federal unemployment tax. Each state has a wage base. Each new employer will be assigned a new employer rate that will adjust after 1 or 2 years of experience with employees. This is also a tax on wages paid by the employer. For instance, in Arizona, new employers pay 2% of wages up to $7000 or $140 per person per year. After some time has passed, the rate adjusts down if you have no unemployment claims or up if you do. Certain states have special starting rates depending on industry.