FUTA Credit Reduction States

August 1, 2012 Category :IRS Form 940 Off

Employers are entitled to a FUTA credit if they paid unemployment taxes to a state government.  The FUTA credit is built into IRS Form 940 and is calculated for you if you are filling out the form and correctly following the Form 940 instructions.

But that nice FUTA credit (it’s a credit of .054 % by the way) gets reduced if you paid wages in one of the following states.

You can tell by the higher number for the State of Michigan (.009) that they must really owe a lot of money to the federal government for unemployment.

States Reduction Rate
Arkansas .003
California .003
Connecticut .003
Florida .003
Georgia .003
Illinois .003
Indiana .006
Kentucky .003
Michigan .009
Minnesota .003
Missouri .003
Nevada .003
New Jersey .003
New York .003
North Carolina .003
Ohio .003
Pennsylvania .003
Rhode Island .003
Virginia .003
Virgin Islands .003
Wisconsin .003

Schedule A (Form 940)

August 1, 2012 Category :IRS Form 940 Off

If you are an employer and you paid wages in more than one state you will have to fill out Schedule A (Form 910).  You simply check the box next to each state in which you paid wages.  It’s quite simple unless you paid wages in a Credit Reduction State.

If you look at Schedule A (Form 910) you’ll see each state listed, with three boxes after each state.  The first box is a blank field…you don’t need to fill it in unless the second box has a number greater than zero.

If the second box has a number that is not .o0o, then you will have to write something in the first box: the amount of FUTA taxable wages you paid.  Then you will multiply the two boxes and write than answer in the third box.

The point of Schedule A (Form 910) is to see if you are really entitled to your  FUTA credit.  If you check a box in a state that owes money to the Federal government, then your FUTA credit gets reduced…that’s unfortunate!  The states that owe money are the ones on Schedule A (Form 910) that have a number greater than zero in that second column.


FUTA Credit Reduction

August 1, 2012 Category :IRS Form 940 Off

Now you know what a FUTA credit is.  When employer pays unemployment taxes to the IRS and to one or more state governments, it’s double billing.  The IRS gives credit for the State tax paid and chops off a chunk owed to the feds.

That nice FUTA credit can be reduced, however, depending on what State we’re dealing with.  It’s called a FUTA credit reduction.  Yes, that nice FUTA credit can be whittled down if you paid wages in a Credit Reduction State.

IRS form 940 comes with Schedule A (form 940), which you must fill out if you paid wages in a Credit reduction state.  By the way you also have to fill it out if you paid wages in more than one state…it’s kind of a multi-purpose form.


FUTA Credit

August 1, 2012 Category :IRS Form 940 Off

We know that the federal government requires employers to pay a payroll tax on every employee.  It’s to fund the unemployment system run by the federal government.  The rate is 6.2% on the first $7000 of wages for each employee.  That comes to $434 per year per employee.  It’s called the Federal Unemployment Tax, or FUTA for short.

States also have unemployment systems that work alongside the federal system.  Consequently the States have their own unemployment taxes.  Employers end up paying into both systems. However, there’s a way to get credit for paying into the state system so employers don’t have to pay quite so much into the federal system.  Yes, the IRS is giving employers a break.  That means more money in employers’ pocket.

It’s  called the FUTA credit, which decreases the amount of FUTA paid by .054%.  It depends on how much unemployment tax was paid into a particular state system.   FUTA tax can be reduced  on IRS form 940 based on the amount paid in state taxes for unemployment.


What is the IRS Form 940?

May 19, 2012 Category :IRS Form 940 Off

Who Has to file the irs form 940?

The IRS form 940 is a required form for any business that has employees.  If you own a business and you pay wages to your employees then you have to file IRS form 940 once a year.  That goes for people who hire domestic help as well (people who work in your home).  If a college club, sorority, fraternity or any other type of private home employs help in that house, then IRS form 940 is required.


IRS form 940 is used for reporting and paying Federal Unemployment tax. This pays for our unemployment system, which compensates people who have lost their jobs.  The Federal Unemployment system, together with the individual states’ unemployment systems, cover the part of the population who have lost their jobs.  IRS form 940 covers the federal portion, which is funded by employers only.  Employers do not take FUTA tax out of their employees’ paychecks.

The Federal unemployment tax rate is currently at 6.0% although it changed halfway through 2011, down from 6.2%.

Filw and Pay IRS Form 940 Electronically

You can pay your Federal Unemployment tax by credit card online after you have e-filed at IRS.gov.