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Updated for 2011

Federal Unemployment Tax (FUTA)

Who Pays Federal Unemployment Taxes?

Federal unemployment taxes (FUTA) are strictly an employer-paid tax. In other words, FUTA tax is not withheld from an employee's gross pay.

The maximum wage base for computing FUTA tax is the first $7,000 of each employee's gross pay. When an employee's gross pay exceeds $7,000, no FUTA tax is assessed on that part of the employee's gross pay.

What are FUTA Funds Used For?

FUTA tax combined with state unemployment tax provide funds for paying unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax.

Form 940 (instructions for Form 940) is used to report your annual Federal Unemployment Tax Act (FUTA) tax.

Due Date for Filing Form 940

You file Form 940 only once each year. The due date for filing Form 940 for 2011 is January 31, 2012.
However, if you made timely FUTA deposits, you may file Form 940 by February 10, 2012.
You must make FUTA deposits by the last day of the month following any quarter in which the FUTA tax liability exceeds $500.

State Reporting Number No Longer Required

You are no longer required to list your state reporting number(s) on Form 940. This is the number assigned to your business when you registered as an employer with your state.

FUTA Rate

The gross FUTA rate is 6.2%.

Employers get a credit for amounts paid to a state unemployment fund by January 31, 2012 (or February 10, 2009 if that is your Form 940 due date) as a result of making timely FUTA deposits. This also applies to the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.

Your FUTA tax will be higher if you do not pay the state unemployment tax timely. State unemployment taxes are sometimes call "contributions. These contributions are payments that a state requires employers to make to its unemployment fund for the payment of unemployment benefits.

For 2011, there are two FUTA tax rates:

The FUTA rate for the first six months of 2011 is: 6.2%
The FUTA rate for the last six months of 2011 is: 6.0%

Keep in mind, there is a credit of up to 5.4% for state unemployment taxes that reduces the FUTA liability to .8% (.008) for the first six months of 2011 and .6% (.006) for the last six months of 2011.

Only employers that pay all the required state unemployment fund contributions for 2011 by April 17, 2012,will receive the entire credit. The credit for payments made after April 17, 2012 is limited to 90% of the pre-deadline credit.

Credit Reduction States

If you live in a credit reduction state, your credit may be reduced.

A state that fails to repay funds borrowed from the federal government to pay unemployment benefits is called a credit reduction state.

In these states, the credit used to reduce the gross FUTA rate is reduced.

Contact information:

For EFTPS, visit www.eftps.gov or call EFTPS
Customer Service at 1-800-555-4477, 1-800-733-4829 (TDD), or 1-800-244-4829 (Spanish).

If you file Form 940 electronically, you can e-file and e-pay via electronic funds withdrawal (EFW) the balance due in a single step using tax preparation software or through a tax professional.

However, do not use EFW to make federal tax deposits. For more information on paying your taxes using EFW, visit the IRS website at www.irs.gov .

You may pay your FUTA tax shown on line 14 using a major credit card.

However, do not use a credit card to pay taxes that are required to be deposited.

Federal Unemployment Tax (FUTA): FUTA Tax Deposits

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