Federal Unemployment (FUTA) Tax

You must pay FUTA tax if you meet either of the following tests.

• You paid cash wages of $20,000 or more to farm workers in any calendar quarter during the current or preceding calendar year.
• You employed 10 or more farm workers for some part of at least 1 day during any 20 or more different calendar weeks during the current or preceding calendar year.

These rules do not apply to exempt services of your spouse, your parents, or your children under age 21. See Family Employees, earlier.

Alien farm workers. Wages paid to aliens admitted on a temporary basis to the United States to perform farm work (also known as "H-2(A)" visa workers) are exempt from FUTA tax. However, include your employment of these workers and the wages you paid them to determine whether you meet either test above.

Commodity wages. Payments in kind for farm labor are not cash wages. Do not count them to figure whether you are subject to FUTA tax or to figure how much tax you owe.

Tax rate and credit. The gross FUTA tax is 6.2% of the first $7,000 cash wages you pay each employee. However, you are given a credit of up to 5.4% for the state unemployment tax you pay. The net tax rate, therefore, can be as low as 0.8% (6.2% - 5.4%). If your state tax rate (experience rate) is less than 5.4%, you may still be allowed the full 5.4% credit.

If you do not pay the state tax, you cannot take the credit. If you are exempt from state unemployment tax for any reason, the full 6.2% rate applies. See the instructions for Form 940 for additional information.

More information. For more information on FUTA tax, see Circular A.

Reporting and Paying FUTA Tax

The FUTA tax is imposed on you as the employer. It must not be collected or deducted from the wages of your employees.

Form 940. Report FUTA tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. The 2001 form is due January 31, 2002, (or February 11, 2002, if you deposit the tax on time and in full.)

Form 940-EZ. You can use Form 940-EZ, a simplified version of Form 940, if you meet all the following tests.

• You paid unemployment contributions to only one state.
• You paid all state unemployment contributions by the due date of Form 940 or 940-EZ.
• All wages subject to FUTA tax were also subject to your state's unemployment tax.

Deposits. If at the end of any calendar quarter you owe, but have not yet deposited, more than $100 in FUTA tax for the year, you must make a deposit by the end of the following month. If the undeposited tax is $100 or less at the end of a quarter, you do not have to deposit it. You must add it to the tax for the next quarter. If the total undeposited tax is more than $100 at the end of the next quarter, a deposit will be required. If the total undeposited tax at the end of the 4th quarter is $100 or less, you can either make a deposit or pay it with your return by the January 31 due date.

Electronic deposit requirement. If you are subject to the electronic deposit requirement, you must use EFTPS to deposit FUTA tax. See Reporting and Paying Social Security, Medicare, and Withheld Income Taxes, earlier, for a discussion of the requirement for making deposits electronically.

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