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Who Pays Federal Unemployment Taxes?

Federal unemployment taxes (FUTA) are strictly an employer-paid tax. In other words, FUTA tax is not withheld from an employee's gross pay.

The maximum wage base for computing FUTA tax is the first $7,000 of each employee's gross pay. When an employee's gross pay exceeds $7,000, no FUTA tax is assessed on that part of the employee's gross pay.

What are FUTA Funds Used For?

FUTA tax combined with state unemployment tax provide funds for paying unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax.

Form 940 is used to report your annual Federal Unemployment Tax Act (FUTA) tax.

Due Date for Filing Form 940

  • You file Form 940 only once each year. The due date for filing Form 940 for 2013 is January 31, 2014.
  • However, if you made timely FUTA deposits, you may file Form 940 by February 10, 2014.
  • You must make FUTA deposits by the last day of the month following any quarter in which the FUTA tax liability exceeds $500.

State Reporting Number Not Required

You are no longer required to list your state reporting number(s) on Form 940. This is the number assigned to your business when you registered as an employer with your state.

FUTA Rate

For tax year 2013, the gross FUTA rate is 6.0% with a maximum credit up to 5.4% of state unemployment taxes paid to a state unemployment fund by January 31, 2014 (or February 10, 2014 if that is your Form 940 due date) as a result of making timely FUTA deposits.  This also applies to the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.

Your FUTA tax will be higher if you do not pay the state unemployment tax timely. State unemployment taxes are sometimes call contributions. These contributions are payments that a state requires employers to make to its unemployment fund for the payment of unemployment benefits.

Credit Reduction States

If you live in a credit reduction state, your credit may be reduced.

A state that fails to repay funds borrowed from the federal government to pay unemployment benefits is called a credit reduction state. In these states, the credit used to reduce the gross FUTA rate is reduced.

If you file Form 940 electronically, you can e-file and e-pay via electronic funds withdrawal (EFW) the balance due in a single step using tax preparation software or through a tax professional.

However, do not use EFW to make federal tax deposits. For more information on paying your taxes using EFW, visit the IRS website at www.irs.gov

You may pay your FUTA tax shown on line 14 using a major credit card. However, do not use a credit card to pay taxes that are required to be deposited.

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