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PR FUTA and 401K or 125 Plans

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Posted · Report post

When setting up payroll, do you use gross wages or taxable wages for calulating the $7000 limit on FUTA and SUI?

Example: Employee is paid $1000 for the week. Has 401K plan that he contributes $100 to. Federal taxable is $900. Is FUTA and SUI based on $1000 or $900?

From Circular E under Computing FUTA tax: "The tax applies to the first $7000 you pay to each employee as wages during the year".

From Circular E under Depositing FUTA tax: "Stop depositing FUTA tax on an employee's wages when he or she reaches $7000 in taxable wages for the calendar year."

I think it needs to be on the $900 in the example above because of the second statement in Circular E.

Thanks in Advance.

Tom

Lodi, CA

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Posted · Report post

401(k) is subject to FUTA (is part of taxable for calculating FUTA).

Circ E has a chart which covers special rules for various types of services and payments.

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Posted · Report post

Like SUTA, FUTA is based on the true gross, so in your example the $1000. The second line just refers to FUTA's taxable wages.

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Posted · Report post

125, if there is no cash option, is excluded from FUTA and most SUTA.

If there is a cash option, the waters get very murky, especially with regards to certain states.

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Posted · Report post

125, if there is no cash option, is excluded from FUTA and most SUTA.

If there is a cash option, the waters get very murky, especially with regards to certain states.

So glad you responded. So the Futa wage base is Gross wages minus any 125 if no cash option.

401k is not deducted for FUTA wage base.

Example: Paid $1000. Has $100 deducted for 401K and $50 for 125 health (no cash option). Taxable wages are $850 for FWH and SWH, FUTA and SUI Tax base is $950.

Do I have this correct?

Thanks for the response. Very much appreciated. BTW, I am in CA for SUI purposes.

Tom

Lodi, CA

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Posted · Report post

My unpaid and unguaranteed opinion is you have it correct.

CA DE 44 (CA state guide) has a "types of payments" chart similar to the federal chart.

--

Added, be sure there is definition/instructions for calculating which item first, as far as determining the amount, or that the amounts are based on the total earned.

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Posted · Report post

My unpaid and unguaranteed opinion

...Is very valuable.

Confirmed in Circular E and Pub 15B. Thanks for getting me on the right track. Apprceciate the help.

Tom

Lodi, CA

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