how to calculate futa tax liability
a company s futa tax liability is fairly straightforward to calculate a company is subject to futa taxes on the first 7 000 of payments made to an employee excluding exempt payments the futa tax rate is 6 and employers often receive a credit of up to 5 4 against this tax 2suppose that employee a was paid 10 000 in wages subject to futa taxes while employee b was paid 5 000 in wages subject to futa taxes both in the first quarter regarding employee a only the first 7 000 of wages per quarter are subject to the tax therefore the tax liability is futa liability employee a s eligible wages employee b s eligible wages x 6 futa liability 7 000 5 000 x 6 the company s futa tax liability would be 720 note that the company may be eligible for a tax credit of 648 12 000 x 5 4 if this is the case the company would only owe 72 the federal unemployment tax act requires employers to file irs form 940 annually to report the paying of their futa taxes irs form 940 generally must be filed in the first quarter of the year who pays the futa tax the reporting requirements for futa vary on the underlying entity that is remitting the taxes to the irs futa taxes can be paid annually or quarterly and the amount of an employer s futa tax liability determines when the tax must be paid here are the different reporting requirements for various types of entities or employers according to the irs a business owes futa if it meets one of two requirements there are two broad measurements to determine whether a business must collect and remit futa and a company only needs to satisfy one of the two following conditions in order to be required to remit futa a calendar quarter is january through march april through june july through september or october through december there is a different set of reporting requirements for household employers those who hire a nanny babysitter maid housekeeper or other people to provide services within one s private home household employers must pay futa tax on wages if the following two conditions are met household employers can opt to file and report futa taxes using schedule h via form 1040 instead of form 940 another varying set of requirements exists for agricultural or farming employers if the employer meets either of the conditions below they are subject to futa tax collection and reporting indian tribal governments are exempt from the futa tax however the tribe must have participated in the state unemployment system for the entire year and be compliant with prevailing unemployment laws religious educational scientific charitable or other tax exempt organizations are also exempt from futa services performed by state or local government parties are also exempt if you re filing your last form 940 because your business has closed or you have stopped paying wages you can select box d in the top right corner of the form to notify the irs 2