How to Calculate a FUTA Return

Every employee must pay FUTA unless explicitly exempt.

Form 940 is the FUTA tax return. This return is to report Federal unemployment taxes to the Internal Revenue Service. When making the computation, only the first $7,000 of the tax is considered. Form 940 walks you through this calculation. If you do not want to perform the calculation by using the form, then most tax software will automatically make the calculation for you. In order to see how much you need to pay in FUTA, you only need to go to line 12 on Form 940.

Things You'll Need

• List of employee earnings

Instructions

1. Add together all payments made to W-2 employees during the year. For example, assume you have three employees who make $50,000, $9,000 and $45,000 respectively. Then, your total wages are $104.000.

2. Subtract $7,000 from each employee's wages, then add the results for each employee together. Add to the result any wages that are exempt from FUTA. In the example, $50,000 minus $7,000 equals $43,000, $9,000 minus $7,000 equals $2,000 and $45,000 minus $7,000 equals $38,000. Then, $43,000 plus $2,000 plus $7,000 equals $52,000.

3. Subtract the sum from Step 2 from the total paid to employees. In the example, $104,000 minus $52,000 equals $52,000. This is wages subject to FUTA.

4. Multiply wages subject to FUTA by 0.008. In the example,$52,000 times 0.008 equals $416.

5. Multiply the total wages subject to FUTA by 0.054 if your wages were not taxed for state unemployment tax. If some of the wages were excluded and others not, which will be rare, then use Form 940's instructions to calculate this amount. Also, use Form 940's Schedule A to calculate any credit reduction. Again, this is rare and you will probably not see this. The sum of these are your total adjustments to FUTA

6. Subtract your total adjustments to FUTA from your FUTA tax to calculate your FUTA after adjustments.

References

• IRS: Form 940