Preparing Your Tax Return(s) and Information
Returns
Employment Taxes
Form 940 Employer's Annual Federal Unemployment Tax Return
New for 2001
The Federal Unemployment Tax Act (FUTA), with state unemployment
systems, provides for payments of unemployment compensation to workers
who have lost their jobs. Most employers pay both a Federal and
a state unemployment tax. Only the employer pays FUTA tax; it is
not deducted from the employee's wages. For information, see the
Instructions
for Form 940.
Use the following three tests to determine whether you must pay FUTA
tax. Each test applies to a different category of employee, and each is independent of the
others. If a test describes your situation, you are subject to FUTA tax on the wages you
pay to employees in that category during the current calendar year.
Computing FUTA tax. For 2000 and 2001, the FUTA tax rate
is 6.2%. The tax applies to the first $7,000 amount you pay each employee as
wages during the year. The $7,000 is the Federal wage base. Your state wage base
may be different. Generally, you can take a credit against your FUTA tax for
amounts you paid into state unemployment funds. This credit cannot be more than
5.4% of taxable wages. If you are entitled to the maximum 5.4% credit, the FUTA
tax rate after the credit is .8%.
See the Instructions for Form 940 for more information on:
Important References
Publication
15
Circular E, Employer's Tax Guide
Form
940
Employer's Annual Federal Unemployment Tax Return
Instructions
for Form 940
Form
940 EZ