Form 940 is a form that must be filed by every small business owner who has employees. For those who are required to file this form, failure to do so will result in an IRS reminder to submit the form, and subsequently, penalties that they really want to avoid. In order to file Form 940 successfully, you need to have at least some basic understanding of the filing requirements that are related to the form.
The IRS requires every employer to pay federal unemployment tax. This tax cannot be paid by employees, and it cannot be withheld from employee wages. It is used for paying unemployment compensation to people who lost their jobs. When you file Form 940, you are actually reporting your federal unemployment tax liability to the IRS. The filing of this form is made compulsory by the Federal Unemployment Tax Act, or FUTA. The amount of tax that must be paid to each employee every year is 0.8% of the first $7,000 paid in wages. If an employee is getting a compensation of $7,000 or more a year, the employer is required to pay a federal unemployment tax of $56.00. If the employee makes less than $7,000, the federal unemployment tax will be 0.8% of the total compensation he or she receives.
If you own a small business and you have employees, you have to file Form 940 at the end of the year. The deadline for filing is the 31st of January the following year. The form will include information such as the total amount of wages paid, wages that are subject to federal unemployment tax, the federal unemployment tax liability for each quarter, all federal unemployment tax paid in previous quarters, and the remaining balance due.
In the event that your quarterly federal unemployment tax liability is more than $500.00, the IRS will require you to make quarterly payment. If your liability in one quarter does not exceed $500.00, you do not have to pay tax for that quarter, and the liability will be carried over to the following quarter. For instance, if the total federal unemployment tax liability that is incurred in the first quarter is $400.00, you are not required to make any payment. Then, in the second quarter, you have a liability of $300.00. Since the total amount of tax owed for the two quarters is $700.00, which is more than $500.00, you have to pay the full $700.00. If you only have a liability of $400.00 in the third quarter, the amount will be carried forward to the next quarter. In the final quarter, you have to pay the liability incurred in that quarter as well as other remaining liability, even if the total amount is less than $500.00.
If you are required to make a quarterly payment to the IRS, you can either submit Form 8109 at a local financial institution or pay via the Electronic Federal Tax Payment System, or EFTPS. The deadline for a quarterly payment is the end of the first month of the next quarter.