IRS Form 940 (Employer’s Annual Federal Unemployment Tax Return) is the tax form you’ll need to file each year if you’re required to pay FUTA taxes. For 2022, the following four states and one jurisdiction were assessed as credit reduction states: The Department of Labor runs the Federal Unemployment Trust Fund loan program, and announces the list of credit reduction states after November 10 of each year. The FUTA tax credit available for employers who have paid wages in a credit reduction state is reduced until such state loans have been repaid. Your state isn’t a credit reduction stateĪ state is a credit reduction state if it hasn’t repaid the loan it’s taken from the federal government to meet its unemployment benefits liabilities within the required time frame for repayment.You paid state unemployment taxes on the same wages that are subject to FUTA tax, and you made those payments in full and on time.You’ll be entitled to the maximum credit of 5.4% if you meet the following: If you’re eligible for the maximum 5.4% credit, your effective FUTA tax rate will be 0.6%. You might be eligible for a credit of up to a maximum of 5.4% of your FUTA taxable wages for amounts you’ve paid into your state’s unemployment fund. However, if you’re also paying state unemployment taxes, you may be entitled to a credit that will reduce the amount of your FUTA tax liability. This means the maximum FUTA tax you may have to pay is $420 for each employee. The FUTA tax rate for 2022 is 6% of the first $7,000 in wages paid to each of your employees in the tax year. Tax-exempt charitable organizations (also known as 501(c)(3) organizations)Īdditionally, the wages of individuals with H-2A, F-1, J-1, M-1 or Q-1 nonimmigrant status may be exempt if they are providing certain types of exempt services.Indian tribal government employers that have participated in the state unemployment system for the full year.The following employers are exempt from FUTA taxes: However, you will not need to pay FUTA taxes on these wages. If you employ any farm workers working under H-2A visas, you’ll count their wages as part of the total cash wages you’ve paid to determine if you meet the FUTA tax test for farmworkers. You employed at least 10 farmworkers for some part of a day (whether or not it was at the same time) during at least 20 or more weeks of the tax year.You’ve paid cash wages of at least $20,000 to your farm workers during any calendar quarter of the tax year.If you’re an agricultural employer, you’ll need to pay FUTA tax if you meet either of the following two conditions: If your employees are household workers-that is, employees who perform household work in a private home, college club, or fraternity or sorority chapter-you’ll be required to pay FUTA tax if you’ve paid a total of $1,000 or more in cash wages to your employees in any calendar quarter of the tax year.Īgricultural workers (farmworkers test). Household workers (household workers test). There are exceptions to this rule, however: You have one or more employees working at least 20 weeks of the tax year (this includes full-time, part-time and temporary employees).You’ve paid $1,500 or more in wages to your employees in any calendar quarter of the tax year.Generally, as an employer, you’ll need to pay FUTA taxes if you meet either of the following two conditions: This means you won’t be deducting or withholding amounts for FUTA tax payments from your employees’ wages. Who Pays FUTA Taxes?įUTA taxes are paid by employers, but not employees. The proceeds from these taxes are used by the federal government to help fund unemployment benefits paid out to individuals who have lost their jobs. FUTA taxes are federal unemployment taxes payable under the Federal Unemployment Tax Act (FUTA).
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