You need to file Form 940 to receive the tax credit. It’s an easy way to make sure you’re maximizing your tax savings. We break it down for you here.
Almost every employer has to pay federal unemployment taxes. And if you’re one of those employers, you’ll file the IRS’ Form 940 once per year to report those taxes to the federal government. It’s an easy form that takes less than 10 minutes to complete––we’ll cover the steps below.
There’s a big reason why you need to file Form 940:
But you need to file Form 940 to receive the tax credit. It’s an easy way to make sure you’re maximizing your tax savings.
Most employers qualify for the 5.4% credit, which means your effective tax rate on Form 940 will be 0.6%. Here’s a simple formula, assuming you pay all your employees at least $7,000 per year:
(Number of employees x 7,000) x (.006) = FUTA taxes owed
(15 employees x 7,000) x (.006) = $630
Why $7,000? It’s the federal wage base for unemployment taxes. This means that once you’ve paid an employee at least $7,000, you don’t pay unemployment taxes on the rest of their income for that year.
If you paid an employee less than $7,000 in a year, you’ll multiply the amount you paid them (say, $3,000) by .006 to get your final number for that employee.
Who doesn’t qualify for the 5.4% credit:
To do the official calculations, just walk through the steps on the official Form 940. There are a few extra steps that we cut for this article, but they’ll get you to the same result as the simplified solution above.
Form 940 is due by January 31st each year. But if you’ve paid all your unemployment taxes on time and in full, you have until February 10th. Here’s when your federal unemployment taxes are due each year:
The best way to pay this tax is through EFTPS. When you’re done filling out the form, go to the IRS’ official webpage to find the exact address you’ll mail it to. Remember that you’ll mail the form to different addresses based on whether or not you’ve included payment with your form.
What you just read above applies to the United States. But if you want to hire globally––and find the best talent in the world––there are different rules to follow. That’s what we’re here for.
Using Panther, you can automate your global payroll process so you don’t have to worry about the nitty-gritty of payroll taxes in the United States or abroad. We’ve spent tens of thousands of hours researching and building this stuff and would love to show you how Panther works.