Did you employ workers in your small business this year? When you have employees, you must handle employment taxes, such as federal unemployment taxes (Futa).
For each employee you have, you must pay a percentage of your salary for federal unemployment taxes, deposit the tax with the IRS, and report your tax liability on Form 940.
So what is Form 940, which employers must file it, and how do you file it? Before you dive into Form 940, review your futa tax liability responsibilities.
about the futa tax
Most employers are responsible for paying federal unemployment tax. The futa tax, along with state unemployment taxes, provides unemployment funds for employees who have lost their jobs.
You do not withhold any money from an employee’s wages for futa tax. but it uses each employee’s wages to determine how much money you owe.
The standard futa tax rate is 6% on the first $7,000 paid to each employee per year. the maximum amount you would pay for each employee per year would be $420 ($7,000 x 0.06).
However, most states receive a tax credit of up to 5.4%, which means that many employers pay only 0.6% of the $7,000 paid to the employee. With the maximum tax credit, the amount you would pay for each employee would be $42 ($7,000 x 0.006).
When you owe futa taxes, you must deposit the money and report it.
what is the 940 model?
Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, is a form that employers file with the IRS to report their annual futa tax liability.
You must file a 940 tax form if any of the following are true:
- paid wages of at least $1,500 to any employee during the standard calendar year.
- had an employee (temporary, part-time, or full-time) working at any time for 20 or more weeks. the 20 weeks do not need to be consecutive.
If you normally have employees, but you did not pay the employees during a particular calendar year, you are still responsible for filing Form 940 and stating that you did not pay the employees.
futa excise tax and form 940 rules
Some businesses must follow special rules for futa tax liability or Form 940 filing requirements. These circumstances are determined by the type of workers employed. Take a look at these conditions for agricultural employees before you file your Form 940.
If you have farm employees, you will only file Form 940 if you paid cash wages of $20,000 or more to farmworkers or employed 10 or more farmworkers for part of the day for 20 or more weeks.
futa tax exemptions
Not all employers are responsible for filing Form 940 and paying futa tax. Tax-exempt organizations, government entities, and Indian Tribal governments that participated in their state unemployment systems do not need to file Form 940 or pay futa tax.
model 940 instructions
Filling out Form 940 is pretty straightforward.
You must include information about your business, including your federal employer identification number (FEIN), business name, and address.
You will also report how much you paid employees, wages excluded from futa tax, and your futa tax liability.
when to file 940
Form 940 is due on January 31 of each year. if January 31 falls on a weekend or official holiday, payment is due the next business day. however, you have until February 12 to file Form 940 if you made your futa tax deposits on time.
where to send the model 940
You can file Form 940 online or mail it to the IRS. if you file electronically, you must use a third party and pay a fee. If you’re wondering where to send Form 940, the address you use depends on the location of your business and whether payment is included. You can find more information about mailing addresses in the IRS instructions for Form 940.
futa tax deposit
Reporting your futa tax liability on Form 940 is not your only responsibility, you must also deposit the money with the IRS.
some small businesses may pay the entire futa tax at one time. however, many small and large businesses may need to make quarterly deposits. quarterly due dates are April 30, July 31, October 31, and January 31.
If your futa tax liability is more than $500 per quarter, you must deposit the money before the quarterly due dates.
If your futa tax liability is less than $500 in a quarter, you can carry it over to the next quarter. will continue to roll it from quarter to quarter if it’s less than $500.
if your futa tax due is less than $500 per year, you can submit an annual payment when you file form 940. you can include the payment when you file form 940 by completing form 940-v, proof of payment.
Need an easy way to keep track of your small business payroll? Patriot’s online payroll services allow you to do your payroll in three simple steps. And when you use our full-service payroll, we’ll deposit and file taxes on your behalf. get your free trial today!
This article has been updated from its original publication date of 01/12/2015.
This is not intended as legal advice; for more information, click here.