FUTA Tax Rate and Wage Base The FUTA tax rate is 6.0% through 2018 and the federal wage base is $7,000. Your state wage base may be different.
Household Employers If you have only household employees, you are not required to make deposits of FUTA tax. Instead, report and pay FUTA tax on your individual income tax return.
State Unemployment Information Contact your state unemployment insurance office to receive your state reporting number, state experience rate, and details about your state unemployment tax obligations.
Purpose of Form File Form 940 to report your annual federal unemployment (FUTA) tax. You, as the employer, must pay this tax. Do not collect or deduct it from your employees’ wages. Use Form 940-EZ, a less complicated version of Form 940, to report your annual FUTA tax if you paid unemployment taxes to only one state, you paid these taxes by January 31, and all wages that were taxable for FUTA tax were also taxable for your state’s unemployment tax.
Who Must File You must file Form 940 if you were not a household or agricultural employer during the current or preceding calendar year and you paid wages of $1,500 or more in any calendar quarter or you had one or more employees for some part of a day in any twenty different weeks. (Count all regular, temporary, and part time employees but do not count partnership partners.) You must file Form 940 if you were a household employer and you paid cash wages of $1,000 or more in any calendar quarter in the current or preceding calendar year for household work in a private home, local college club, or a local chapter of a college fraternity or sorority. You must file Form 940 if you were an agricultural employer and you paid cash wages of $20,000 or more to farm workers during any calendar quarter in the current or preceding calendar year or you employed ten or more farm workers during some part of a day (whether or not at the same time) for at least one day during any twenty different weeks in the current or preceding calendar year. (Count aliens admitted on a temporary basis to the United States to perform farm work.)
Penalties and Interest Avoid penalties and interest by making tax deposits when due, filing a correct return, and paying the proper amount of tax when due. The law provides penalties for late deposits and late filing unless you show reasonable cause for the delay. If you do file late, attach an explanation to the return. There are also penalties for wilful failure to pay tax, keep records, make returns, and filing false or fraudulent returns. Credit for Contributions Paid into State Funds You can claim credit for amounts you pay into a certified state unemployment fund by the due date of Form 940. Your FUTA tax will be higher if you do not pay the state contributions in a timely manner. Contributions are payments that state law requires you to make to an unemployment fund because you are an employer. These payments are considered contributions only to the extent that they are not deducted or deductible from the employees’ pay. Do not take credit for penalties, interest, or special administrative taxes that are not included in the contribution rate the state assigned to you. Do not take credit for voluntary contributions paid to get a lower assigned rate. You may receive an additional credit if you have an experience rate lower than 5.4%. This applies even if your rate is different during the year. This additional credit is equal to the difference between actual payments and the amount you would have been required to pay at 5.4%. The total credit allowable may not be more than 5.4% of the total taxable FUTA wages.
Special Credit for Successor Employers A successor employer is an employer who received a unit of an employer’s trade or business or all or most of the property used in the trade or business of another employer. The successor employer must employ one or more individuals who were employed by the previous owner immediately after the acquisition. You may be eligible for a credit based on the state unemployment contributions paid by the previous employer. You may claim these credits if you are a successor employer and acquired a business in the current calendar year from a previous employer who was not an employer for FUTA purposes during the current calendar year. The previous employer must not have paid wages of $1,500 or more in any calendar quarter in the current calendar year or have employed any employees for any twenty or more weeks during the current calendar year. Successor employers may be able to count the wages that the previous employer paid to their employees when reporting the payments for services that exceed the wage base of $7,000.
When to File The due date of the Form 940 is January 31 of the following year. If you deposited all tax when due, you may file on or before February 12. Your form is filed on time if it is properly addressed and postmarked no later than the due date.
Where to File
FUTA Tax Amount to Deposit Although Form 940 covers a calendar year, you may have to make deposits of the tax before filing the return. Determine you FUTA tax for each of the first three quarters by multiplying by .008 that part of the first $7,000 paid to each employee during the quarter. If any part of the amount paid is exempt from state unemployment taxes, you may deposit an amount more than the .008 rate. If the tax is $500 or less at the end of a quarter you are not required to make a deposit. However, you must add it to the tax for the next quarter. Then, in the next quarter, if the total un-deposited tax is more than $500, you must deposit it. If your liability for the fourth quarter (plus any un-deposited amount from any earlier quarter) is over $500, deposit the entire amount by the due date of Form 940. If the tax is $500 or less, you can either make a deposit or pay it with your Form 940. FUTA deposit due dates are listed in the Federal Tax Calendar.
How to Deposit Use the Federal EFTPS system to tax deposits. This system is free to use, but does require registration.
Exempt Payments Wages and employment as defined for FUTA purposes do not include every payment and every kind of service an employee may perform. In general, payments excluded from wages and payments for services excepted from employment are not subject to tax. Amounts that may be exempt from your state’s unemployment tax may not be exempt from federal unemployment tax. Payments exempt for federal purposes include those for:
- agricultural labor not meeting the tests noted above,
- benefit payments for sickness or injury under a workers’ compensation law,
- household service if you did not pay cash wages of $1,000 or more in any calendar quarter
- certain family employment,
- certain fishing activities,
- non-cash payments for farm work or household services in a private home,
- value of certain meals and lodging,
- cost of group term life insurance,
- payments attributable to the employee’s contributions to a sick pay plan,
- benefits that are excludable under a Section 125 (cafeteria) plan, and
- any other exempt service or pay.