As of the 2008 tax period, the Internal Revenue Service (IRS) is no longer using or accepting Form 940-EZ. Anyone who would have filed this form must now use the simplified Form 940 (see additional resources below). This form is used to report an employer's annual federal unemployment tax (FUTA). This is a tax on employers only, not to be withheld from employee pay, that is used to fund federal unemployment programs. The dollar amounts listed in this article are subject to change annually and should be verified before filing Form 940.
Who Must File?
Form 940 must be filed by any employer who either paid $1,500 or more in any calendar quarter of the last two tax periods, or who had one or more employees for at least part of a day during 20 or more different weeks in either of the previous two tax periods. Even if the business was sold during the year, any employer who fits either of the above descriptions must submit the form and payment for the wages paid by them. If an employer has household employees who earn cash wages of $1,000 or more in any quarter, including those that work for country clubs, fraternal societies or clubs, they can be included in Form 940, though normally they are reported on Schedule H of Form 1040.
How to Calculate FUTA
Each quarter, an employer must total the amount of wages paid to each employee and pay FUTA on the first $7,000 paid to an employee. For example, if an employer has two employees who earned $10,000 each and one who earned $6,000, she would owe FUTA on $19,000 ($7,000 + $7,000 + $6,000=$20,000), corresponding to Line 7 on Form 940. The rate of FUTA is 6.2 percent, but employers receive a credit if they also pay state unemployment. Start by multiplying the taxable FUTA wages by 0.8 percent (0.008), which on $20,000 is $160 (Line 8). If all of the FUTA wages were subject to state unemployment, this is the total FUTA liability. If the employer did not pay state unemployment tax, the total FUTA wages are again multiplied by 5.4 percent (0.054), which makes the total FUTA in this example $1,240 ($160 + 1,080). If only some of the FUTA wages were subject to state unemployment tax, the difference between 5.4 percent and the state rate is applied.
When to File and Pay
Form 940 is due to the IRS by the first business day of February unless all FUTA taxes have already been paid, in which case the form is due by February 10. Though Form 940 includes information from an entire fiscal year, employers with a total FUTA obligation of $500 are required to make at least one quarterly payment. Beginning with the first quarter of its fiscal year, employers must pay FUTA tax in any quarter in which their obligation exceeds $500, or roll over the taxes to the next quarter. Once the cumulative total reaches $500, a quarterly payment must be made. If the total obligation is less than $500 in the fourth quarter, the full payment must be made for the year by the first business day in February.