Totally Confused About Tax Rates

[gorilla]

Hey everyone,

I just spent about 20 minutes on the phone with an IRS agent, just to make sure that I have the correct rates set up, and we both seemed to be speaking different languages.

Firstly, If I go to Tools -> Federal Tax Tables, federal Exemption Allowance, it is set at $3,650

The IRS agent said that is the rate for employees who are paid annually. But I pay my employees semi-monthly. am I supposed to change that amount then?

Also, I asked her about Federal Unemployment (FUTA), and she referred me to the instructions for 940 Year 2008, which say that is should be 6.2%

However, when I updated the tables in Paywindow, they listed it as .8000% with a cutoff of $7,000

That seemed really strange because I have FICA (not FUTA) set as 6.2 percent with a cutoff of $106,800

So, my questions is whether FUTA is .80000% or 6.2% and what the cutoff should be.

and another thing: I was checking the Table for Single Persons in Tools -> Federal Tax Tables, and I noticed that the default values are for ANNUAL payments.

Since we pay semi-monthly, do I need to edit those to reflect the semi-monthly values? Or is it ok to leave them with the default annual values?

Thanks in advance for any help you can provide.

[Paul Mayer]

Computer software uses the annual calculation method by multiplying your taxable wages by the pay period performing the calculations and then dividing the result by the pay period so that all pay periods come out correctly.

Here is the scoop on FICA:

The Social Security tax rate of 7.65% is the combined total of the FICA tax rate of 6.2% and the Medicare tax rate of 1.45%. The maximum wage limit subject to FICA tax (6.2%) in 2009 is $106,800. There is no limit on wages subject to the Medicare (1.45%) tax.

So the settings are correct in PayWindow.

Here is the scoop on FUTA:

The FUTA tax rate is 6.2% of taxable wages. The taxable wage base is the first $7,000 paid in wages to each employee during a calendar year. Employers who pay the state unemployment tax, on a timely basis, will receive an offset credit of up to 5.4% regardless of the rate of tax they pay the state. Therefore, the net FUTA tax rate is generally 0.8% (6.2% - 5.4%), for a maximum FUTA tax of $56.00 per employee, per year (.008 X $7,000. = $56.00).

Again, the settings are correct in PayWindow.

We have the information the way it should be and you can always use the new Publication 15-T and the Exact Calculation method to work out the math and we always come out to the exact penny.

DO NOT CHANGE ANY OF THE TABLES AND FEDERAL SETTINGS.

[gorilla]

Thank You, Paul!!!