Form 940: CPA example of 2012 FUTA calculations. Hi I’m Gary Bode, a CPA with a virtual office to help your company wherever it is. I believe in making clients as self-reliant in payroll administration as they wish. And then give 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 it’s hard to get experience with it.
- The IRS has some specialized terminology that doesn’t make sense to non-accountant types.
- Schedule A was new last year and it still complicates Form 940 preparation this year.
- The rates recently changed. Some parts of Form 940 may not apply to you.
Here’s a 2012 Form 940 Preparation Example filled out to the specs 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, we’re only using one State, but, we’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, and we’re just going to carry over an imaginary figure from it, to, Form 940.
Part 2 of Form 940
We’ll use two employees:
- Employee A received $28,000 in 2012 which includes $1,000 of retirement contributions.
- Employee B received $17,000 in 2012.
Calculations
- Line 3 is $45,000 (28,000 + 17,000).
- Line 4 is $1,000 (the retirement contributions).
- Line 5 is $30,000 [(28,000 – 1,000 – 7,000) + (17,000 – 7,000)].
- Line 6 is $31,000 (30,000 + 1,000).
- Line 7 is $14,000 (35,000 – 31,000). 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)
Part 3 of Form 940
Our simple example only uses Line 11 which carries over a figure 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 2012, so they didn’t.
- Line 14 is $168.
Page 2
Part 5 of Form 940
- Line 16a is $10. 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 2012.
- Line 16b is $30. I just made up these figures, but I decided that Employee B’s wages didn’t exceed $7,000 until sometime during the 2nd calendar quarter.
- Line 16c and 16d. Typically these calendar Quarters incur more 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 be their Form 940 FUTA third-party designee. But this return was self prepared. The person signing it becomes the IRS contact.
940-V
This is the best part, a payment coupon. Note the IRS prefers you use EFTPS and 940-V will eventually disappear.
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You noted in line 17 that the amount was $84, the same as line 14. However line 14 has $168. Does that mean you owe (according to this example) $84?
Randy, my description was wrong in the text, sorry. The total due is $168. The Form 940 stays the same and is correct. Thanks for catching that.