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Tax Help With Form 940

Form 940 is used to report the employer’s annual Federal Unemployment Tax Act (FUTA) tax. In conjunction with state unemployment tax systems, FUTA tax provides funds for paying unemployment compensation to wage earners who have lost their jobs. Looking for tax help understanding this? Community Tax offers a full range of tax solutions including tax preparation, accounting and IRS resolution services.

The FUTA tax is solely paid by employers and none of the tax is deducted from employees’ wages. The FUTA tax applies to the first $7,000 of wages paid to each employee during a calendar year after subtracting payments exempt from FUTA tax. For more information relative to the FUTA tax and exempt wages, please see IRS Publications 15 (also known as the Circular E) as well as IRS Publications 15a and 15b. The current rate of tax is .6% or.006.

In general, any employer who paid wages of $1,500 to employees in any calendar quarter during year 2012 or 2013 or if an employer had one or more employees for some part of a day in any 20 or more different weeks in years 2012 or 2013 must file Form 940. There are other specifics that apply to employers of Household Employees and Agricultural Employees. Tax-exempt Organizations described in IRC Section 501(c)(3) are not subject to FUTA tax and do not have to file this form.

The due date for filing Form 940 for any calendar year is January 31 of the following year; therefore the form for year 2013 is due January 31, 2014. Where you file Form 940 depends on what state the business is located in and whether you are making a payment with the return. The form instructions have a reference table showing the various IRS addresses to mail the return to.

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An employer receives a credit for amounts paid to a state unemployment fund by January 31. The FUTA tax will be higher if an employer does not pay the state unemployment tax by the due date of Form 940. It is important to note that Form 940 does not have a line on it relative to the “state credit” because it is not a tax credit per se but Part 1 of this form does show state specific information relative to the state or states to which an employer remits state unemployment tax. If the employer did not pay state unemployment tax, or if wages were exempt from state unemployment tax then the increase to FUTA tax can be an additional 5.4% of the first $7,000 of wages per employee and if the employer is operating in a “credit reduction state” this can also increase the FUTA tax.

Although Form 940 is always based on a calendar year, an employer may have to make FUTA tax deposits prior to filing the form. If your FUTA tax is $500 or less in a quarter, then a deposit is not required; however, you must carry that liability over to the next quarter until your cumulative tax is greater than $500 in which case you must make the deposit for the cumulative total no later than the last day of the month following the end of the quarter. So whenever the cumulative total equals or exceeds $500, a FUTA tax deposit is required by the last day of the month following quarter end. The deposits must be made using the IRS EFTPS, Electronic Federal Tax Payment System. Deposit your taxes in a timely fashion to avoid penalties and interest.

Form 940 can be broken down as follows:

The first section is basically information amount the employer entity.

• Part 1 is designed to illicit state specific information and depending on the circumstances, the employer may have to complete and submit Schedule A (Form 940.)

• Part 2 is the actual calculation of the FUTA tax.

• Part 3 calculates any addition to FUTA tax that may be determined based on relevant state specific information.

• Part 4 depicts the FUTA tax, deposits made during the year, and any balance due with Form 940, or any overpayment applied to the next years’ return.

• Part 5 is a recap of the FUTA tax liability by quarter.

• Parts 6 and 7 have information about the paid preparer (if there is one) and the employer’s responsible party.

For more information on the Federal Unemployment Tax Act, or for any other type of tax help, Contact Community Tax for a FREE consultation! The IRS tax code can be difficult to navigate, our team of CPAs, tax preparers and practitioners can provide the tax help you need to ensure that your business continues to grow and stay out of IRS problems.

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