Accounting & Bookkeeping & Small Business Forum

[asnider]

I have an LLC with one employee (other than myself). Obviously, I pay unemployment taxes on my employee, but do I have to pay unemployment for myself too?

[RobJ]

asnider wrote: I have an LLC with one employee (other than myself). Obviously, I pay unemployment taxes on my employee, but do I have to pay unemployment for myself too?
You don't pay unemployment taxes, but you will pay self-employment taxes on the net income of the LLC when it "passes" to your personal income tax return (Form 1040).

Rob

[asnider]

Rob,

Thanks for the reply. See that's exactly what I thought; however, I spoke with an employee of the state (texas) and they told me I was to pay state unemployment on my salary as well.......Not sure what to believe!!!

[RobJ]

asnider wrote: I spoke with an employee of the state (texas) and they told me I was to pay state unemployment on my salary as well
First, my comments are assuming that your LLC is a "single-owner" LLC. If so, read on ...

On the FEDERAL side - unless you elected to have your LLC treated as a "corporation" by filing Form 8832, the IRS sees you and will treat you as a "sole proprietor" when filing your taxes. That means you report your income and expenses on Schedule C of Form 1040. That further means, you pay "self-employment" taxes and NOT "unemployment" taxes (FUTA). As such, the periodic (weekly, bi-weekly, monthly, quarterly) payments you make to yourself are NOT salary and you DO NOT issue yourself a W-2 at the end of the year. That said, you DO have to pay employment taxes on your employee's wages/salaries and you DO have to issue a W-2 at the end of the year for each employee. Here's a copy of IRS Publication 3402 that addresses your original question (surprisingly, in fairly simple terms) - http://www.irs.gov/pub/irs-pdf/p3402.pdf.

On the STATE side - TEXAS - out of the "horse's mouth" (http://www.twc.state.tx.us/ui/tax/subject.html), you are subject to TUCA if you are "an Employing Unit that is subject to the Federal Unemployment Tax Act (FUTA) and has Texas employees". Well ... you ARE; HOWEVER, only for your employees. The periodic payments you make to yourself are NOT salary and are NOT subject to federal unemployment tax (FUTA) and, as such, are NOT subject to state unemployment tax (TUCA).

As to the "employee" of the State of Texas you spoke with, did you call a "general" number? The word "salary" evokes all sorts of responses from a "taxing authority". You ARE NOT (under FEDERAL/IRS guidelines) paying yourself a SALARY. If the State of Texas only requires you to pay TUCA when you pay FUCA, I (and you) would like to know their rationale for making you pay TUCA when you DO NOT have to pay FUCA.

A little more dramatic effect than I needed, but I hope it helps.

Rob

[Richard Noot]

Rob[/quote]If the State of Texas only requires you to pay TUCA when you pay FUCA, I (and you) would like to know their rationale for making you pay TUCA when you DO NOT have to pay FUCA.

This is quite poswsible. STATE unemployment is goverend bt the states where futa is giverened by the feds. personally i am exempt from futa but have to pay suta to the state of mn.

[RobJ]

Richard Noot wrote: This is quite poswsible. STATE unemployment is goverend bt the states where futa is giverened by the feds. personally i am exempt from futa but have to pay suta to the state of mn.
I was addressing Texas specifically.

As for Minnesota - Minnesota Law Chapter 268.035 Subd. 12 (2007) defines "covered employment" (employment which is subject to state unemployment taxes). Subdivision 12 starts by saying, "Covered employment means the following unless excluded as noncovered employment under subdivision 20."

Minnesota Law Chapter 268.035 Subd. 20 (2007), Paragraph 28 defines as "noncovered" (or excluded) "employment of a corporate officer, if the officer owns 25 percent or more of the employer corporation, and employment of a member of a limited liability company, if the member owns 25 percent or more of the employer limited liability company."

You didn't say what type of business entity you have, but in terms of a Limited Liability Company (LLC), it seems Minnesota Law says the owner would be excluded and thereby exempt from paying state unemployment taxes.

Am I missing something?

Rob

[Richard Noot]

RobJ wrote: Richard Noot wrote: This is quite poswsible. STATE unemployment is goverend bt the states where futa is giverened by the feds. personally i am exempt from futa but have to pay suta to the state of mn.
I was addressing Texas specifically.

As for Minnesota - Minnesota Law Chapter 268.035 Subd. 12 (2007) defines "covered employment" (employment which is subject to state unemployment taxes). Subdivision 12 starts by saying, "Covered employment means the following unless excluded as noncovered employment under subdivision 20."

Minnesota Law Chapter 268.035 Subd. 20 (2007), Paragraph 28 defines as "noncovered" (or excluded) "employment of a corporate officer, if the officer owns 25 percent or more of the employer corporation, and employment of a member of a limited liability company, if the member owns 25 percent or more of the employer limited liability company."

You didn't say what type of business entity you have, but in terms of a Limited Liability Company (LLC), it seems Minnesota Law says the owner would be excluded and thereby exempt from paying state unemployment taxes.

Am I missing something?

Rob No. Your not missing anything. My wife has a 50% membership in my LLC

[RobJ]

Richard Noot wrote: No. Your not missing anything. My wife has a 50% membership in my LLC
Then, why are you paying state unemployment tax when you don't have to pay federal unemployment tax and Minnesota law seems pretty clear that you don't have to pay?

What I'm missing is why you're paying something when everything says you don't have to. I've got to be missing something.

Rob

[Richard Noot]

A sole proprietor does not pay FUTA on a spouse. A sole proprietorship has to pay SUTA on the wages of a spouse if he/she is also has min of 25% membership which my wife does. The same analogy holds for a C corp n MN. An officer can elect to be covered by SUTA.

[RobJ]

Richard Noot wrote: A sole proprietor does not pay FUTA on a spouse. A sole proprietorship has to pay SUTA on the wages of a spouse if he/she is also has min of 25% membership which my wife does. The same analogy holds for a C corp n MN. An officer can elect to be covered by SUTA.
In an earlier post, you said, "i am exempt from futa but have to pay suta to the state of mn."

Are you "electing/choosing" to pay SUTA or are you "obligated" to pay SUTA for yourself? If you have an LLC, state law seems to exclude you from any obligation to pay SUTA since you own more than 25% of the business.

Rob

[dp1903]

RobJ is correct concerning Texas. I've lived here all my life and I have 10 years accounting experience. My most recent job was with a single member LLC treated as a sole proprietorship in Texas. The owner had 4 employees. I handled all the accounting. No TUCA tax was paid on the owner's draws.

Quote: Thanks for the reply. See that's exactly what I thought; however, I spoke with an employee of the state (texas) and they told me I was to pay state unemployment on my salary as well.......Not sure what to believe!!!

By definition, asnider, you do not earn a "salary". Salaries or wages are only earned by "employees". You may not deduct your "salary" as a business expense on your tax return because you are not an "employee". What a sole proprietor earns is a "profit" or a "loss" from his business. So, what you call "salary" is actually "owner equity" withdrawn from your business. I suspect the Texas state employee heard "salary" and assumed you were an employee of a corporation. In any case, they told you wrong.

I