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State Unemployment Taxes and SUTA Dumping, May 27, 2005 1 (May 27, 2005)

handle is hein.tera/crstax0579 and id is 1 raw text is: Order Code RS22069 Updated May 27, 2005 CRS Report for Congress Received through the CRS Web State Unemployment Taxes and SUTA Dumping Steven Maguire Analyst in Public Finance Government and Finance Division Julie M. Whittaker Analyst in Applied Microeconomics Domestic Social Policy Division Summary This report provides a summary of the State Unemployment Tax Acts (SUTA) Dumping Prevention Act of 2004, P.L. 108-295. The term SUTA dumping refers to a variety of tax planning strategies used by employers to minimize the tax burden of federally mandated state unemployment taxes. The strategies exploit the differences in methods state employ to determine unemployment tax rates among established employers and the method by which states determine the tax rate of new firms and firms that have either created new subsidiaries or have absorbed other firms. SUTA dumping creates tax inequities when firms avoid their appropriate state unemployment taxes. Firms that follow state unemployment tax law are burdened with additional taxes as a result of the tax avoidance by the firms that engage in SUTA dumping. This report will be updated as legislative activities warrant. Overview The Unemployment Compensation (UC) Program. UC is ajoint federal- state program and is financed by federal taxes under the Federal Unemployment Tax Act (FUTA) and by state payroll taxes under the State Unemployment Tax Acts (SUTA). The underlying framework of the UC system is contained in the Social Security Act (SSA). Title III authorizes grants to states for the administration of state Unemployment Compensation (UC) laws; Title IX authorizes the various components of the federal Unemployment Trust Fund (UTF); and, Title XII authorizes advances or loans to insolvent state UC programs. UC Financing. Among its 59 accounts, the federal UTF in the U.S. Treasury includes the Employment Security Administration Account (ESAA), the Extended Congressional Research Service oe The Library of Congress

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