Form 940

Form 940 is the form that is used by employers to file their annual Federal Unemployment Act (FUTA) tax. There are two unemployment taxes that employers pay, the state and the federal unemployment tax. The tax collected is what is used by the government to pay for the unemployment compensation of the workers who have lost their jobs. It should be noted that only the employers pay the FUTA tax and it should not be taken from from the employees’ wages.

How much an employer pays on FUTA taxes is based on the wages of the employees. Starting July 1 the government collects 0.6 percent of the first $7,000 of wages per year. With this calculation for each employee the employer has to pay $42 in FUTA taxes. The calculation of the FUTA taxes should be based on the employee’s gross pay and it should never be deducted from their wages.

A business must pay FUTA taxes if:

  • For any quarter in 2010 or 2012 the employer has paid $1,500 or more in wages. Anything below the amount is exempt from paying FUTA taxes.
  • There is more than one employee under your payroll that is working on any time of the day in 20 or more different weeks in 2010 or in 2011.

FUTA tax calculation

FUTA tax is based on the $7,000 salary cap. To know how much should be paid the amount of the salary is multiplied by 0.6 percent or 0.06. The result of the computation is what should be paid to the government for the FUTA tax.

To file the FUTA tax the Form 940 should be completed. In the form you will be asked to calculate the total that you owed in FUTA taxes from the previous year and also how much you have already paid. You will submit your Form 940 to the IRS by January 31.

How to pay FUTA tax

The FUTA tax is paid quarterly if the FUTA tax that you need to pay is over $500. If it does not reach that amount the balance for the quarter will be added to the next quarter until it reaches $500. You will then file your payment by filling up the Form 940.

You can have a reduction of you FUTA taxes based on certain terms. To know what these terms are it would be best to contact your state employment agency.