Form 940: CPA example of 2013 FUTA calculations.Â Hi Iâ€™m Gary Bode, a CPA with a virtual office to help your company wherever it is. I believe in making clients as self-reliantÂ in payroll administration as they wish. And then giveÂ support if required.
I think Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, is confusing in an IRS sort of way:
- You only prepare it once a year, so itâ€™s hard to get experience with it.
- The IRS has some specialized terminology that doesnâ€™t make sense to non-CPA accountant types.
- Schedule AÂ is sort ofÂ new and it still complicates Form 940 preparation this year.
- The rates recently changed. Some parts of Form 940 may not apply to you.
Hereâ€™s a filled out 2013 FUTA IRS Form 940 example prepared per the specs below.
Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, basics
- Form 940 uses a calendar year. Only include wages paid in 2013.
- Only the first $7,000 of gross wages per employee per calender year are taxable.
- Some types of wages are exempt from tax. See the list on Line 4 of the 2013 FUTA example tax form.
- Federal FUTA tax is 0.6%. So the maximum federal FUTA tax is $42 per year (0.6% x $7,000) per employee per calendar year.
- There could be additional FUTA depending on the State you live in.Â Read below.
The 940 Header
No real issues here. If you want to amend your Form 940 later, because you mis-calculated the FUTA liability, just check the amended check box in the top right box.
Part 1 of Form 940
Since this is an easy example, weâ€™re only using one State, but, weâ€™re assuming it is a Credit Reduction state. That means you had to prepare Schedule A for Form 940. Schedule A of Form 940 is pretty obvious,Â and weâ€™re just going to carry over an imaginary figure fromÂ it, to, Form 940.
Part 2 of Form 940
Weâ€™ll use two employees:
- Employee A received $28,000 in 2013 which includes $1,000 of retirement contributions.
- Employee B received $17,000 in 2013.
Form 940 Calculations
- Line 3 is $45,000 (28,000 + 17,000).Â Total payments to all employees.
- Line 4 is $1,000 (the retirement contributions).Â Payments exempt from FUTA tax. Note the other exemptions.
- Line 5 is $30,000 [(28,000 â€“ 1,000 â€“ 7,000) + (17,000 â€“ 7,000)].Â Total of payments made to each employee in excess of $7,000.
- Line 6 is $31,000 (30,000 + 1,000). Subtotal.
- Line 7 is $14,000 (35,000 â€“ 31,000).Â Total taxable FUTA wages. Notice there were two employees in 2012 and the maximum taxable FUTA wage in 2012 is $7,000. $7,000 x 2 = $14,000.
- Line 8 is $84.00 (.006 x 14,000).Â FUTA tax before adjustments.
Part 3 of Form 940
Our simple example only uses Line 11 which carries over a figureÂ from Schedule A for taxpayers living in a State requiring a credit reduction.
Part 4 of Form 940
- Line 12 is $168 (84 + 84).
- Line 13 is $0. Our company had no obligation to deposit FUTA funds in 2013, so they didnâ€™t.
- Line 14 is $168.
Part 5 of Form 940
- Line 16a is $143. Why? The first $7,000 of gross wages for each employee did not incur FUTA. Only Employee A had gross wages exceeding $7,000 in the first Quarter of 2013.
- Line 16b is $25. I just made up these figures, but I decidedÂ that Employee Bâ€™s wages didnâ€™t exceed $7,000 until sometime during the 2nd calendar quarter.
- Line 16cÂ and 16d. Typically these calendar Quarters incurÂ less FUTA tax than the first two Quarters.
- Line 17 is $168. Note this matches Line 14 above.
Part 6 of Form 940
Usually clients want us to beÂ their Form 940 FUTA third-partyÂ designee. But this return was self prepared. The person signing it becomes the IRS contact.
This is the best part, a payment coupon. Note the IRS prefers you use EFTPS and 940-V will eventually disappear.