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How Do I Complete Form 940 - How Do I Determine Unemployment Tax?

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Question: How Do I Complete Form 940 - How Do I Determine Unemployment Tax?

Employers must pay unemployment tax (FUTA Tax), based on employee wages/salaries and must submit Form 940 - Federal Employer Unemployment (FUTA) Tax Return, showing the amount of unemployment tax owed for the previous year, the amount already paid, and the amount owed.

Form 940 is due at the beginning of February, for the previous year.

Answer:

First, determine the amount of unemployment tax owed:

  • Show total payments to all employees (wages and salaries)
  • Subtract payments that are exempt from FUTA, including benefits, group life insurance, retirement payments, and dependent care benefits.
  • Also subtract total payments to each employee in excess of $7000.

Then determine that total taxable FUTA wages by multiplying the total FUTA wages times 0.008 (0.8 percent). For wages after July 1, 2011, multiply the total FUTA wages times 0.006 (.6%).

If you paid into one or more eligible state unemployment funds, you may adjust the amount owed to federal unemployment.

When you have determined the amount of FUTA tax owed, you must show how much has already been paid and how much is still owed. You are responsible for paying the amount still due, at the time you submit the Form 940.

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