401(k) contributions are not subject to Federal Unemployment (FUTA) tax. FUTA taxes apply to wages paid to employees, but 401(k) contributions are made by employees out of their pre-tax income. They are not considered wages and are therefore not subject to FUTA tax. This is because 401(k) contributions are considered a form of retirement savings, and FUTA taxes are used to fund unemployment benefits for workers who lose their jobs
FICA and FUTA Payroll Taxes
FICA and FUTA are two payroll taxes imposed by the federal government on employers and employees. FICA taxes are used to fund Social Security and Medicare programs, while FUTA taxes are used to fund unemployment insurance benefits.
Both FICA and FUTA taxes are calculated as a percentage of an employee’s wages. The FICA tax rate is 7.65%, which is divided into two parts: 6.2% for Social Security and 1.45% for Medicare. The FUTA tax rate is 6.0%, but employers are allowed to deduct a credit of up to 5.4% for state unemployment insurance taxes that they have paid.
401k contributions are not subject to FICA taxes. This is because 401k contributions are made on a pre-tax basis, meaning that they are deducted from an employee’s wages before FICA taxes are calculated.
FUTA taxes, on the other hand, are subject to 401k contributions. This is because FUTA taxes are calculated on an employee’s total wages, including 401k contributions.
| Tax | Rate | Applies to |
|---|---|---|
| FICA | 7.65% | Wages |
| FUTA | 6.0% | Total wages, including 401k contributions |
401(k) Plan Deferrals and Taxes
401(k) plans are retirement savings plans offered by many employers. Employees can elect to have a portion of their paycheck contributed to a 401(k) plan on a pre-tax basis. This means that the employee’s contributions are not subject to federal income tax until they are withdrawn from the plan.
However, 401(k) plan deferrals are subject to the Federal Unemployment Tax Act (FUTA). FUTA is a federal payroll tax that is used to fund unemployment insurance benefits. FUTA is imposed on employers who pay wages to employees.
The FUTA tax rate is 6.0%, and it is applied to the first $7,000 of wages paid to each employee during the calendar year.
401(k) plan deferrals are considered to be wages for purposes of FUTA. This means that employers must pay FUTA taxes on the amount of 401(k) plan deferrals made by their employees.
There is an exception to the rule that 401(k) plan deferrals are subject to FUTA. The exception applies to 401(k) plan deferrals that are made on a Roth basis. Roth 401(k) plan deferrals are not subject to FUTA taxes.
- Example:
An employee earns $100,000 per year. The employee elects to defer $10,000 of his or her salary to a 401(k) plan on a pre-tax basis. The employer must pay FUTA taxes on the $10,000 of 401(k) plan deferrals.
| Type of 401(k) Plan Deferral | Subject to FUTA? |
|---|---|
| Traditional 401(k) plan deferrals | Yes |
| Roth 401(k) plan deferrals | No |
FUTA Taxable Wages
The Federal Unemployment Tax Act (FUTA) is a federal law that imposes a tax on employers to fund unemployment benefits. FUTA taxable wages are the total amount of wages paid to employees, including:
- Salaries and wages
- Bonuses
- Commissions
- Tips
FUTA taxable wages do not include:
- 401(k) contributions
- Health insurance premiums
- Life insurance premiums
- Retirement plan contributions
Type of Income FUTA Taxable? Salaries and wages Yes Bonuses Yes Commissions Yes Tips Yes 401(k) contributions No Health insurance premiums No Life insurance premiums No Retirement plan contributions No Exclusions from FUTA Tax
The Federal Unemployment Tax Act (FUTA) is a federal law that imposes a tax on employers to fund the unemployment insurance program. Generally, FUTA taxes apply to all wages paid to employees, but there are some exceptions, including:
- Wages paid to employees under the age of 18
- Wages paid to employees who are students and are enrolled in a full-time program at an educational institution
- Wages paid to employees who are performing services that are exempt from Social Security taxes, such as certain agricultural labor and domestic services
401(k) contributions are not subject to FUTA taxes. This is because 401(k) contributions are considered to be a form of deferred compensation, and deferred compensation is not subject to FUTA taxes.
The following table summarizes the FUTA tax exclusions for 401(k) contributions:
401(k) Contribution Type FUTA Taxable Traditional 401(k) contributions No Roth 401(k) contributions No Catch-up contributions No Hey there, folks! Thanks a bunch for sticking with me through this 401k and FUTA rundown. I hope you found it helpful. Remember, these are just the basics, and every situation is unique. If you’re still scratching your head, don’t hesitate to dive deeper into the IRS website or chat up a tax pro. Stay tuned for more money-savvy reads coming your way. Catch ya later!