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Preparing Your Tax Return(s) and Information ReturnsBusiness TaxesEmployment TaxesForm 940 Employer's Annual Federal Unemployment Tax ReturnThe Federal Unemployment Tax Act (FUTA), with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a Federal and a state unemployment tax. Only the employer pays FUTA tax; it is not deducted from the employee's wages. For information, see the Instructions for Form 940. Use the following three tests to determine whether you must pay FUTA tax. Each test applies to a different category of employee, and each is independent of the others. If a test describes your situation, you are subject to FUTA tax on the wages you pay to employees in that category during the current calendar year. The current FUTA tax rate is 6.2%. The tax applies to the first $7,000 amount you pay each employee as wages during the year. The $7,000 is the Federal wage base. Your state wage base may be different. Generally, you can take a credit against your FUTA tax for amounts you paid into state unemployment funds. This credit cannot be more than 5.4% of taxable wages. If you are entitled to the maximum 5.4% credit, the FUTA tax rate after the credit is 8%. See the Instructions for Form 940 for more information on:
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(Circular E), Employer's Tax Guide |