Short-week supplemental unemployment benefits ARE TAXABLE under FICA unless they meet certain IRS requirements
Supplemental unemployment benefits are a much valued benefit for construction workers as it provides income when they need it most, during involuntary lay-offs. Benefits are subject to FICA and FUTA taxation, however, unless payments meet certain IRS requirements. These include:
(1) benefits are paid only to unemployed former employees who are laid off by the employer;
(2) eligibility for benefits depends upon meeting prescribed conditions after terminating employment
with the employer;
(3) benefits are paid by trustees of independent trusts;
(4) the amount of weekly benefits payable is based upon state unemployment benefits, other compensation allowable under state laws, and the amount of straight-time weekly pay after withholding of all taxes and contributions;
(5) the duration of the benefits is affected by the fund level and the employee’s seniority;
(6) the right to benefits does not accrue until a prescribed period after termination of employment;
(7) the benefits are not attributable to the rendering of particular services by the recipient during the period
of unemployment; and
(8) no employee has any right, title, or interest in the fund until such employee is qualified and eligible to receive benefits
Many supplemental unemployment benefit plans provide benefits for short-work weeks (less than 36 hours worked due to inclement weather). Although such payments are permissible, they do not meet the IRS requirements outlined above to be exempt from FICA and FUTA. Specifically, if the employee is not eligible to collect state unemployment benefits, they are not meeting the criteria to have the benefit based upon state unemployment benefits.
Note: A narrow exemption does exist for short-work week benefits when they are made to individuals who otherwise receive excludable benefits, i.e., they are made in a week preceding or following a week in which an employee receives a state unemployment benefit.
How we can help
DirectAdvisors was established in 2001 and is located in Albany, New York. We provide bona fide benefit plan consulting and third party administrative services to merit shop (non-union) construction companies that are subject to the Davis-Bacon Act, Service Contract Act and State Prevailing Wage Regulations. Our clients are located throughout the United States and range in size from 10 to 3,000 employees.
In 2018, our construction company clients will contribute tens of millions of dollars of prevailing wage fringe benefit contributions to The DirectAdvisors Trust (health & welfare benefits) and retirement plans managed by our team.
To be clear, we do not sell any financial or insurance products. Therefore, our solutions are free from any conflict of interest. We work with existing agents, brokers and insurance companies.
If you have additional questions please do not hesitate to contact us or download our whitepapers – “Harnessing the Power of Supplemental Unemployment Benefit Plans” and “Working the Fringe.”
Please also view our short animated video, to see how constructing a bona fide fringe benefit plan can do the following:
- Move prevailing wage dollars out of payroll.
- Reduce associated costs.
- Increase profits.
- Submit more competitive bids.
- Build employee loyalty.