Q. If we have a Supplemental Unemployment Pay Plan to supplement unemployment benefits, do the company and the employee have to pay FICA and FUTA taxes on the supplemental pay?
A. No. FICA (Federal Insurance Contributions Act) is the payroll tax imposed by the federal government on employees and employers to fund Social Security and Medicare. FUTA (Federal Unemployment Tax Act) is the payroll tax imposed only on the employer to help fund unemployment .
If your Supplemental Unemployment Pay Plan is properly structured, you do not pay the employer’s share of the FICA and FUTA taxes, and the employee does not have withholding for FICA. The Supplemental Unemployment Pay Plan must comply with Revenue Ruling 56-249, 1956-1, C.B. 488.
However, the supplemental pay benefit will be subject to federal and state income tax withholding.
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