Chapter 11
Federal Unemployment (FUTA) Tax
--U.S. Virgin Islands Employers Only

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 employees' wages. For information, see the Instructions for Form 940.

You must file Form 940 or Form 940-EZ, Employer's Annual Federal Unemployment (FUTA) Tax Return, if you are subject to FUTA tax under the following rules.

In general. You are subject to FUTA tax in 2001 on the wages you pay employees who are not farmworkers or household workers if:

1. You paid wages of $1,500 or more in any calendar quarter of 2000 or 2001 or
2. You had one or more employees for at least some part of a day in any 20 different weeks in 2000 or 20 or more different weeks in 2001.

Household workers. You are subject to FUTA tax only if you paid total cash wages of $1,000 or more for all household workers in 2001 in any calendar quarter in 2000 or 2001.

Farmworkers. You are subject to FUTA tax on the wages you pay to farmworkers in 2001 if:

1. You paid total cash wages of $20,000 or more for the farmwork in any calendar quarter to farmworkers during 2000 or 2001 or
2. You employed 10 or more farmworkers during at least some part of a day (whether or not at the same time) during any 20 or more different weeks in 2000 or 20 or more different weeks in 2001.

To determine whether you meet either test above, you must count wages paid to aliens admitted on a temporary basis to the United States to perform farmwork, also known as H-2(A) visa workers. However, wages paid to H-2(A) visa workers are not subject to the FUTA tax.

In most cases, farmworkers supplied by a crew leader are considered employees of the farm operator for FUTA tax purposes. However, this is not the case if either of the following applies and the crew leader is not an employee of the farm operator:

1. The crew leader is registered under the Migrant and Seasonal Agricultural Worker Protection Act.
2. Substantially all the workers supplied by the crew leader operate or maintain tractors, harvesting or cropdusting machines, or other machines provided by the crew leader.

If 1) or 2) applies, the farmworkers are employees of the crew leader.

Rate. The FUTA tax rate for 2001 and 2002 is 6.2% of the first $7,000 of wages you pay each employee during the calendar year. Only the employer pays the tax. Do not deduct it from employees' wages. Generally, you may take a credit of 5.4% against the FUTA tax for payments to U.S. Virgin Islands unemployment funds. Therefore, your actual tax rate is usually 0.8% (6.2% - 5.4%). However, your credit is reduced if you did not pay all required U.S. Virgin Islands unemployment tax by the due date of Form 940 or 940-EZ. The credit cannot be more than 5.4% of taxable FUTA wages.

Form 940 or 940-EZ. By January 31, file Form 940 or 940-EZ. If you make deposits on time in full payment of the tax due for the year, you have 10 additional days to file.

Form 940-EZ is a simple FUTA tax return for filers with uncomplicated tax situations. You can generally use Form 940-EZ if:

• You are liable for unemployment tax only in the U.S. Virgin Islands;
• You make all required payments to the U.S. Virgin Islands by the due date of Form 940 or 940-EZ; and
• All wages subject to FUTA tax are also subject to U.S. Virgin Islands unemployment tax.

If you do not meet these conditions, file Form 940 instead. Once you have filed Form 940 or 940-EZ, the IRS will send you a preaddressed form.

Deposits. If you are not required to deposit using EFTPS (see section 8), deposit the FUTA tax with an authorized financial institution. Send a deposit coupon with each payment.

Figure your liability for the FUTA tax quarterly. Multiply by .008 (0.8%) the part of the first $7,000 of each employee's wages that you paid during the quarter. If any part of the first $7,000 paid to employees is exempt from U.S. Virgin Islands unemployment taxes, you may deposit an amount in excess of the .008 rate. If this amount (plus any undeposited amount from earlier quarters) is more than $100, deposit it by the last day of the first month after the end of the quarter. If the result is $100 or less, add it to the FUTA tax for the next quarter, and do not make a deposit. Make this calculation for each of the first 3 quarters of the year.

If the FUTA tax reportable on Form 940 or 940-EZ, minus the amounts deposited for the first 3 quarters, is more than $100, deposit the tax by January 31. If the result is $100 or less, you may either deposit the tax or pay it with Form 940 or 940-EZ by January 31.

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