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

Instructions and Help about Are 940 Schedule Reduction Rates

Hi welcome to easy payroll guide my name is Karen Hutchinson and in this video we're going to be completing the IRS form 940 this is the federal unemployment tax that is owed at the end of each year it's also known as futa which is the federal unemployment tax act we are going to complete the IRS 940 using a fictitious example this example kind of piggybacks off of the example that I did in my earlier video at the beginning of this page as we were calculating the food a liability we have three employees in this business and the employees are all paid wages that are taxable for food a' employee a is a resident of Maryland and has been paid a total wage of $16,000 employee B is a resident of Maryland as well and has been paid wages of $13,000 an employee's C is a resident of Delaware and has been paid total wages of $8,000 this is a total of 37 thousand dollars paid and wages I wanted to give you an example of a multi-state 940 as well so that's why I have one employee here who is a resident of Delaware so this means that the employer would be playing state unemployment taxes to Maryland and to Delaware for its respective employees so what this means is that I owe as the employer food or wages on the first twenty one thousand dollars because each of my employees have met the minimum requirement of or the maximum requirement of seven thousand so Fuda is paid on the first seven thousand dollars in wages for each employee since they all made over seven thousand dollars I'm responsible for paying the full amount of food a wage for each employee so that's twenty one thousand dollars seven thousand times three employees I have excess wages of sixteen thousand dollars if I take my total wages thirty-seven thousand and subtract my food Oh ages which is 21 thousand you'll see that I've paid excess wages of sixteen thousand these are the amount of wages that are not subject to food attacks because they these are the wages that are over the seven thousand dollar threshold for each employee so we're going to use this information to complete the IRS form 940 now the beginning of the 940 the top portion is your business information you would complete this with all of the information for your particular business and you won't really probably need to check anything in this box unless you're amending or you're completing closing your business and this is your final 940 if you did not make any payments to employees and you still need to file this return and you'll want to check box C so we're going to start with Part one and Part one says that if you had to pay state unemployment tax in only one state then you would enter the state abbreviation and 1a so if all of my employees were from Maryland then I would enter MD for Maryland's here but since I have an employee from Delaware I am considered a multi-state employer so that means that for line B I'm gonna check the box because I'm a multi-state employer which means that I've employed employees from more than one state I will need to complete schedule a and filed Schedule A along with the 940 and we will touch on that as we get closer towards the end of this form line number 2 says that if you paid wages in the state that is subject to a credit reduction then you need to check here credit reduction states are states that have taken loans from the government to meet their state unemployment benefits and they've not repaid them within a certain timeframe so for right now I have the 2022 credit reduction states and these are the credit reductions that are occurring as the employer you are having to pay more tax because your state has not repaid these loans so you are not receiving the full credit reduction you will have to pay a little bit more so if your state is listed or you have employees that live in one of the states listed then you'll be paying a little bit more for your food attacks it just so happens that Delaware happens to be a credit reduction state so I'll show you how this works in this example so going back I would have checked boxes 1b and box 2 since I'm a multi-state employer and Delaware is a credit reduction state part two number three says the total payments to employees this is simply the total wages that you've paid to all of your employees so for this particular example the total wages that I've paid is $37,000 so I'm going to put 37,000 sorry that font is a little large so 37,000 has been paid to my employees and that goes in box three your total wages 9/4 is payments exempt from futa tax if you have any payments that are exempt from this tax you would have to read the IRS guidelines to see what was exempt but if you had anything you would put them here on line four this is a pretty typical small business so I don't have any payments that are exempt from the futa tax and again here it gives you some examples of what might apply fringe benefits group term life insurance retirement pensions dependent care all of these if you have any of these you might want to check into which payments are exempt so line 5 is the total payments made to each employee in excess of that $7000 so that's where this excess wages calculation comes in they want to know how much did you pay in excess of the $7,000 wage limit that you need to pay taxes on so for this example it's sixteen thousand.

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