FUTA Tax: Payment and Reporting Guide
Paying and reporting FUTA taxes involves a few important steps.
1. Calculate the Tax: First, you need to figure out how much FUTA tax you owe. The tax rate is 6.0% on the first $7,000 of each employee’s wages each year. For instance, if an employee earns $10,000, you only pay the tax on the first $7,000. This means the most you will pay for each employee is $420 per year. If you get a state unemployment tax credit of 5.4%, the amount you owe per employee drops to $42.
2. Make Quarterly Payments: If the FUTA tax you owe is more than $500 for the year, you must pay it every quarter. The payment dates are April 30, July 31, October 31, and January 31 for the previous quarter. If you owe $500 or less for the whole year, you can pay it all at once at the end of the year instead of making quarterly payments.
3. Use the Electronic Federal Tax Payment System (EFTPS): You need to use the Electronic Federal Tax Payment System (EFTPS) to pay your FUTA taxes. This system is secure and makes sure your payments are on time. To start using EFTPS, sign up online. Once you’re registered, you can set up payments, see your payment history, and get payment confirmations.
4. File Form 940 Annually: Every year, you must fill out and file Form 940, the Employer’s Annual Federal Unemployment (FUTA) Tax Return. This form shows how much tax you owe, what you’ve already paid, and if you owe any more. Form 940 must be submitted by January 31st for the preceding year. If you paid all your FUTA tax on time, you get until February 10 to file. Make sure to fill out this form correctly to avoid any penalties.
5. Keep Accurate Records: It’s important to keep good records of all your FUTA tax information. This includes wages paid to employees, how you calculated the tax, payment dates, and copies of Form 940. Retain these records for a minimum of four years. Good records help you prove your payments and calculations if the IRS ever checks your business.
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