Tax Form 940 Information
Employers must withhold federal income tax from their employees’ wages. You also withhold part of Social Security and Medicare taxes from their wages and you pay a matching amount to yourself.
Federal Unemployment Tax
The Federal Unemployment Tax Act (FUTA) is separate from federal income tax, Social Security and Medicare taxes. Employers report this tax by filing an annual Form 940 with the Internal Revenue Service. Sometimes the employer is required to make quarterly payments during the tax year.
Calculating Tax Amount
FUTA puts a 6.2% tax on the employer for the first $7,000 of gross earnings of each worker per year. Once the $7,000 amount is reached then, the employer no longer pays any Federal unemployment tax for that year concerning that particular worker. There are some credits that are allowed with respect to state unemployment taxes paid that may reduce the effective rate to 0.8%.
Employers Must Pay If:
- You employed one or more individuals who worked at least 20 calendar weeks (doesn’t have to be consecutive) during the current or preceding tax year or
- Paid at least $1,500 in employee wages during any quarter.
Employer Pays
Only the employer pays the federal unemployment tax. This tax is not paid by the employee or taken out of the employees’ pay. For more information, refer to the instructions for FORM 940. This is a PDF (portable document file).
FORM 940
You will want to consult FORM 940 for certain employment situations like:
- Household Employees
- Agricultural Farm Workers
- Services Rendered to Indian Tribal Government
- Tax-Exempt Organizations
- State and Local Government Employees
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