What is FUTA Tax?
Posted on Tue, Oct 18, 2011
FUTA tax is the federal component to the unemployment insurance program created by the Federal Unemployment Tax Act. FUTA is a counterpart to SUTA, the unemployment fund for each state; employers pay FUTA tax to fund the federal government's oversight of each state SUTA program.Calculating FUTA TaxEmployers pay FUTA tax -- also known as a contribution -- on the first $7,000 paid to each employee in a calendar year, subtracting any exemptions from FUTA tax. For many years the FUTA rate was 6.2%; however, a component of the tax expired June 30, 2011, dropping the current payroll tax rate to 6.0% (read our article on the FUTA surtax expiration.) Employers generally receive a credit on their FUTA tax for making timely state contributions.Note: Employers in states with high unemployment may find this credit reduced. States that have not repaid money borrowed from the federal government are considered "credit reduction states." Consult Schedule A of the 940 return for more information on your state.Filing Form 940Employers must file the annual Form 940 -- the Employer’s Annual Federal Unemployment (FUTA) TaxReturn -- by January 31 of the following year. Generally, you must file this form if you answer yes to either of these questions:
- Paid wages of $1,500 or more to employees in any calendar quarter during the last two years
- Had one or more full-time, part-time, or temporary employees for at least part of the workday in 20 or more weeks in either years
There are several exceptions, including employers of state or local government governments, tax-exempt organizations, and Indian tribal governments.
Making FUTA Deposits and Year-end Payments
If your company’s FUTA liability exceeds $500 at any time during the year, you must deposit this amount in the quarter that you exceeded that amount. You must make all FUTA deposits electronically via the Electronic Federal Tax Payment System (EFTPS).
If the amount due at year-end is less than $500, you can pay this balance when you file your annual Form 940. You can make an EFTPS deposit of the tax or use a credit card, debit card, check, or money order to pay the FUTA tax due.
This article has been provided by Patriot Software, Inc., developer of online payroll software and other SaaS software for small businesses. For more information, visit www.PatriotSoftware.com.