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Form 940 Changes | Wilmington NC CPA discusses FUTA

CPA Wilmington NC discusses FUTA and IRS Form 940

Gary Bode, CPA: Payroll administration is more dynamic now than it has for decades. For a free initial phone consultation on any tax or accounting issue, call us at 399-2705.

Form 940 and FUTA havn’t changed for decades. But starting today, July 1st, 2011, Congress allowed the 0.2% FUTA surtax to lapse. I expect a modified Form 940, for 2011, to facilitate calculation of the two rates.

What is FUTA?

FUTA, Federal Unemployment Tax, funds half of the unemployment compensation in all states. It also allows states to borrow from it, under certain conditions, to help with their half. FUTA is only collected from employers and does not directly affect employee compensation. Previously, the rate was 6.2% on the first $7000 of calendar year wages on each qualifying employee. But this was offset by a 5.4% credit for paying unemployment taxes to the NC ESC. Rendering an effective FUTA tax rate of 0.8%;  for a maximum tax expense of $56 per employee per year (0.08 x 7000). Here’s a link to our previous Form 940 and FUTA post.

Dollar Example on Form 940

In 2012, the 0.2% decrease in FUTA means the maximum paid per employee drops $14 per year (0.2% x 7000); for a new maximum tax expense of $42 per year per employee.

In 2011, the situation is more complex since long term employees probably earned the $7000 FUTA base during the first half of the year.

Bad News for Wilmington NC Employers Filing Form 940?

According to the Department of Labor, NC is on the list of states that borrowed from FUTA and haven’t paid them back yet. This means Wilmington NC employers could pay a FUTA rate of 1.1% in the last half of 2011 and perhaps even 2012. This is a maximum tax expense of $77 per employee per year. Watch for updates.

While we’re a Wilmington NC CPA Firm, our free initial phone consult, has graced us with clients from a broader geographic base. Even if you don’t live here in beautiful Wilmington, we can offer you superb customer service through technology. Please read a few of our CPA posts to help gauge our expertise and proactive philosophy. If you’d like a free initial consult, call us at (910) 399-2705.

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