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Video instructions and help with filling out and completing 940 Schedule A Credit Reduction Rates

Instructions and Help about 940 Schedule A Credit Reduction Rates

Hi welcome to easy payroll guide my name is Karen Hutchinson and in this video we're going to be talking about how to calculate your federal unemployment liability the federal unemployment is also known as futa which stands for federal unemployment tax Act so you'll hear these two terms being used synonymously we're going to be calculating our federal unemployment liability in preparation for completion of the IRS form 940 which is the federal unemployment form a few things that we need to know about few de you must make a deposit for your federal unemployment tax accountability once your liability reaches $500 now what this means is you need to keep track of your food a liability once it reaches $500 you must make a deposit if your liability doesn't reach $500 throughout the entire calendar year then you can wait and make your deposit with your 940 form which would be at the beginning of the new year so you're going to be calculating your 940 for the entire year which will be due in January of the following year and that's when you can pay your liability if it doesn't reach $500 what you need to know is that the federal unemployment tax is paid on the first $7,000 of each employees wages this is a tax that is paid by the employer it is not withheld from the employees paycheck and it is only paid on the first $7,000 in wages the current federal unemployment rate is 6% however most states are eligible for a credit which will reduce it to 6 tenths of a percent the federal unemployment tax act is in place to oversee the state's unemployment agencies so the majority of your unemployment tax is going to go to the state however because the federal unemployment has to oversee this they are collecting a small portion if you pay your state on attacks on time and you are not negligent in any way in the tax that you owe your state then you will be eligible for the credit which will greatly reduce the federal unemployment rate so what we're going to do is we're going to just talk about in this video how to calculate your food a liability throughout the year because again once you reach that $500 liability you must pay the tax if you reach your $500 liability in March then you need to pay that tax in March and then start calculating again to see when you'll reach that $500 liability again so typically if you take $7,000 and you multiply it by point zero zero six which is the six tenths of a percent you'll find that for each employee you owe $42 in food a liability if you hire less than ten employees then you pretty much don't have to worry about calculating throughout the year however if you start employing more employees more than ten and you're paying them more than $7,000 in wages then you will need to calculate throughout the year to make sure that you pay that five hundred dollar liability by the end of the quarter in which it's reach okay so for example we're gonna start with fictitiously three employees and I'm going to give you the wages and how I determine when I need to pay the food attacks and how I keep track of how much tax is owed for each employee so four quarter one we have three employees a B and C and in the first column here I'm just dictating how much I've paid in wages for the quarter so this is for all three months January February March these are gross wages as well and then we're going to talk about which wages are subject to the futa tax so these are just straight wages they're all subject to the futa tax an employee a I paid $4,000 employee the 3,500 and employee C 2022 since were paying food a liability on the first seven thousand dollars and wages all of these employees wages are subject to the futa tax because none of them have reached the seven thousand dollar threshold so I'm going to be paying food attacks on four thousand three thousand five hundred and two thousand since they're all under seven thousand dollars so for the first quarter I will be paying food attacks on nine thousand five hundred dollars okay so my first quarter liability is $57 9500 times point zero zero six since it's fifty seven dollars I can carry this fifty seven dollars over in second quarter because I haven't reached that five hundred dollar threshold yet but for second quarter I need to decide how much of their future wages or how much of their wages for that quarter are subject to the tax because once they reach seven thousand I don't owe any more tax for that particular employee so for first quarter what we need to do is we need to take our magic number and I'll put that up here our magic number is seven thousand dollars so we want to take seven thousand dollars and subtract what we've already paid so we paid four thousand that means that we still owe tax on three thousand dollars okay seven thousand minus four thousand is three thousand for employee B seven thousand minus thirty five hundred is thirty five hundred and for employee C 7,000 minus two thousand is five thousand so this is how much I still owe for each employee in taxes for futa we're going to carry these amounts over to our chart for second quarter and we're going to put them here because I'm not paid more than three thousand dollars in food attacks for employee a okay I'm not gonna pay more than I have to so let's look at the second quarter here and for second quarter employee hey I owe $3,000 or I have to pay tax.

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