What is Form 940 and Why Must You File It?

Every small business owner with employees must file Form 940th The purpose of this article is to help you understand what the form of 940 all and why you need to file. Non-registration is not an option. Not filing results in a letter from the IRS to ask why you filed that return. And not filing could go to penalties, which you really want to avoid, too. Please read on to get an overview of the income tax requirement.

The purpose of the Form 940 is your state unemployment tax report, aka "FUTA", which stands for "Federal Unemployment Tax Act. Every employer needs to federal unemployment tax to the IRS. The employee does not pay his taxes, nor can the employer withhold this tax from employee in wages. This tax is used to unemployment benefits for workers who pay to lose their jobs too.

The tax is normally paid 0.8% of first $ 7,000 of wages to each employee each year. So, if an employee compensation $ 7,000 or more in a given year, the employer pays $ 56 ($ 7,000 x 0.8%) in federal unemployment tax. If the employee has compensation less than $ 7,000, the FUTA is calculated as follows: Compensation x 0.8%.

The IRS requires that the tax paid quarterly, if the quarterly FUTA liability shall not exceed $ 500. If the quarterly liability is less than $ 500, then no payment is required and the relevant quarterly liability is transferred to the next quarter. Example: in the first quarter, your FUTA liability of $ 400, so that no payment is required. In the second quarter is your FUTA liability of $ 300. So, now that your total year-to-date liability (first and second quarters combined) is $ 700, you must pay the entire $ 700 because that amount exceeds $ 500. In the third quarter, your liability is $ 400, but no payment is required. In the fourth quarter, you must pay any remaining liability for past quarters, and the fourth quarter, regardless of the amount, even if the liability less than $ 500.

Form 940 is filed until the end of the year and is dated 31 January the following year due. The form of payroll reports, wages subject to federal unemployment taxes (ie a salary of more than $ 7,000 and) every employee, the FUTA tax liability for each quarter FUTA tax payments made in prior quarters, and any remaining balance.

If a quarterly payment for a particular quarter is required, the payment shall be made by the Federal Tax Deposit system, ie on the form 8109 at your local bank or through EFTPS, the Electronic Federal Tax Payment System.

Any required quarterly payment must be made until the end of the month following the end of the quarter, ie 1 Quarterly payment due is 30 April, 2 Quarterly payment due is 31 July, 3 Quarterly payment due is 31 October and 4 Quarterly Payment 31st January due.

Editor Tips

Self-employment tax is similar to the income tax withheld from wages of most employees. The biggest difference is that paying a contractor, you are obligated, both the employee and employer contributions to social security and Medicare taxes. Thus, while paying the employees of a company to 7.65%, 15.3% self-employed workers pay Social Security and Medicare taxes.

If you anytime with an IRS bank levy or other tax questions, you should seek tax advice from professionals face. You are ultimately more familiar with the laws and can help you, back on track much faster than if you try to face the IRS alone.

There are certain penalties with unfiled taxes involved. If you wait for a past that returns you would be best suited to do this immediately file. The faster you move, the better the chance of avoiding the maximum non-compliance penalty file.