With January 31st less than two weeks away, we are tackling all of your major questions about year-end filing. We generally get a lot of questions from our clients regarding their FUTA and SUTA tax filing requirements.
Reporting this information is a requirement for the majority of businesses that hire and pay wages to employees.
FUTA stands for the Federal Unemployment Tax Act. This legislation imposes a payroll tax on employers. You may ask why? The answer is simple, these taxes are what fund federal unemployment payments when individuals lose their jobs.
These taxes are paid by employers only, no amount is deducted from employee wages. This makes it different from the taxes withheld and reported quarterly using Form 941.
How are FUTA taxes reported?
This applies to employers that have paid wages totaling $1,500 or more during any quarter of 2021 or 2022. If this does not apply to your business, but you have employed one or more workers in the course of 20 or more weeks of the calendar year (excluding business partners), then you are also required to report FUTA information.
There are a few exceptions to this rule, including household workers, Tax-exempt organizations, and Indian Tribal Governments. Check out the full IRS instructions to learn more.
There is a general rule to follow when calculating FUTA tax amounts, employers pay FUTA taxes on the first $7,000 of wages made by an employee during the calendar year. Depending on the size of your business’s tax liability this payment can be made annually or quarterly.
The FUTA tax rate for the 2022 tax year is 6% or 0.06. Based on state unemployment taxes (SUTA) this percentage can be reduced.
What about SUTA Taxes?
SUTA taxes are state unemployment taxes, these are completely different from FUTA taxes. While these taxes are completely separate and the rate of state taxes will vary depending on the state, there is a connection between the two.
When businesses pay their state unemployment taxes correctly and on time, they become eligible for a FUTA tax credit. Depending on their state tax rate, employers can receive a credit of up to 5.4%. This can reduce their federal unemployment tax rate tremendously.
State unemployment tax rates are typically available on the state’s Department of Revenue website.
What is Form 940?
As mentioned, Form 940 is the Employer’s Annual Federal Unemployment (FUTA) Tax Return. This is the form that employers are required to file on an annual basis to report FUTA taxes to the IRS.
The deadline to file Form 940 is January 31, 2023. However, if your business has made timely deposits to the IRS, they will allow you until February 10, 2023 to file this form.
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