14. Federal Unemployment (FUTA) Tax(p28)

The Federal Unemployment Tax Act (FUTA), with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax. A list of state unemployment agencies, including addresses and phone numbers, is available in the Instructions for Form 940. Only the employer pays FUTA tax; it is not withheld from the employee's wages. For more information, see the Instructions for Form 940.

Use the following three tests to determine whether you must pay FUTA tax. Each test applies to a different category of employee, and each is independent of the others. If a test describes your situation, you are subject to FUTA tax on the wages you pay to employees in that category during the current calendar year.

1. General test.You are subject to FUTA tax in 2012 on the wages you pay employees who are not farmworkers or household workers if:
   
   1. You paid wages of $1,500 or more in any calendar quarter in 2011 or 2012, or
   2. You had one or more employees for at least some part of a day in any 20 or more different weeks in 2011 or 20 or more different weeks in 2012.
2. Household employees test.You are subject to FUTA tax if you paid total cash wages of $1,000 or more to household employees in any calendar quarter in 2011 or 2012. A household employee is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter.
   
3. Farmworkers test.You are subject to FUTA tax on the wages you pay to farmworkers if:
   
   1. You paid cash wages of $20,000 or more to farmworkers during any calendar quarter in 2011 or 2012, or
   2. You employed 10 or more farmworkers during at least some part of a day (whether or not at the same time) during any 20 or more different weeks in 2011 or 20 or more different weeks in 2012.

For 2012, the FUTA tax rate is 6.0%. The tax applies to the first $7,000 you pay to each employee as wages during the year. The $7,000 is the federal wage base. Your state wage base may be different.

Generally, you can take a credit against your FUTA tax for amounts you paid into state unemployment funds. The credit may be as much as 5.4% of FUTA taxable wages. If you are entitled to the maximum 5.4% credit, the FUTA tax rate after credit is 0.6%. You are entitled to the maximum credit if you paid your state unemployment taxes in full, on time, and on all the same wages as are subject to FUTA tax, and as long as the state is not determined to be a credit reduction state. See the Instructions for Form 940 to determine the credit.

In some states, the wages subject to state unemployment tax are the same as the wages subject to FUTA tax. However, certain states exempt some types of wages from state unemployment tax, even though they are subject to FUTA tax (for example, wages paid to corporate officers, certain payments of sick pay by unions, and certain fringe benefits). In such a case, you may be required to deposit more than 0.6% FUTA tax on those wages. See the Instructions for Form 940 for further guidance.

If you acquired a business from an employer who was liable for FUTA tax, you may be able to count the wages that employer paid to the employees who continue to work for you when you figure the $7,000 FUTA wage base. See the Instructions for Form 940.

For deposit purposes, figure FUTA tax quarterly. Determine your FUTA tax liability by multiplying the amount of taxable wages paid during the quarter by 0.6%. Stop depositing FUTA tax on an employee's wages when he or she reaches $7,000 in taxable wages for the calendar year.

If your FUTA tax liability for any calendar quarter is $500 or less, you do not have to deposit the tax. Instead, you may carry it forward and add it to the liability figured in the next quarter to see if you must make a deposit. If your FUTA tax liability for any calendar quarter is over $500 (including any FUTA tax carried forward from an earlier quarter), you must deposit the tax by electronic funds transfer. See section 11 for more information on electronic funds transfer.

You are not required to deposit FUTA taxes for household employees unless you report their wages on Form 941, Form 944, or Form 943. See Publication 926 for more information.

Deposit the FUTA tax by the last day of the first month that follows the end of the quarter. If the due date (below) for making your deposit falls on a Saturday, Sunday, or legal holiday, you may make your deposit on the next business day.

If your liability for the fourth quarter (plus any undeposited amount from any earlier quarter) is over $500, deposit the entire amount by the due date of Form 940 (January 31). If it is $500 or less, you can make a deposit, pay the tax with a credit or debit card, or pay the tax with your 2011 Form 940 by January 31. For information on paying your taxes with a credit or debit card, visit the IRS website at www.irs.gov/e-pay.

Quarter	Ending	Due Date
Jan.–Feb.–Mar.	Mar. 31	Apr. 30
Apr.–May–June	June 30	July 31
July–Aug.–Sept.	Sept. 30	Oct. 31
Oct.–Nov.–Dec.	Dec. 31	Jan. 31

Use Form 940 to report FUTA tax. File your 2011 Form 940 by January 31, 2012. However, if you deposited all FUTA tax when due, you may file on or before February 10, 2012. If you do not receive Form 940, you can get a form by calling 1-800-TAX-FORM (1-800-829-3676).

If you did not report employment taxes for household employees on Form 941, Form 944, or Form 943, report FUTA tax for these employees on Schedule H (Form 1040). See Publication 926 for more information. You must have an EIN to file Schedule H (Form 1040).

Reporting agents filing Forms 940 for groups of taxpayers can file them electronically. See the Reporting Agent discussion in section 7 of Publication 15-A.

Special Classes of Employment and Special Types of Payments			Treatment Under Employment Taxes
			Income Tax Withholding	Social Security and Medicare	Federal Unemployment
Aliens, nonresident.			See Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, and Publication 519, U.S. Tax Guide for Aliens.
Aliens, resident:
1. Service performed in the U.S.			Same as U.S. citizen.	Same as U.S. citizen. (Exempt if any part of service as crew member of foreign vessel or aircraft is performed outside U.S.)	Same as U.S. citizen.
2. Service performed outside U.S.			Withhold	Taxable if (1) working for an American employer or (2) an American employer by agreement covers U.S. citizens and residents employed by its foreign affiliates.	Exempt unless on or in connection with an American vessel or aircraft and either performed under contract made in U.S., or alien is employed on such vessel or aircraft when it touches U.S. port.
Cafeteria plan benefits under section 125.			If employee chooses cash, subject to all employment taxes. If employee chooses another benefit, the treatment is the same as if the benefit was provided outside the plan. See Publication 15-B for more information.
Deceased worker:
1.	Wages paid to beneficiary or estate in same calendar year as worker's death. See the Instructions for Forms W-2 and W-3 for details.		Exempt	Taxable	Taxable
2.	Wages paid to beneficiary or estate after calendar year of worker's death.		Exempt	Exempt	Exempt
Dependent care assistance programs.			Exempt to the extent it is reasonable to believe amounts are excludable from gross income under section 129.
Disabled worker's wages paid after year in which worker became entitled to disability insurance benefits under the Social Security Act.			Withhold	Exempt, if worker did not perform any service for employer during period for which payment is made.	Taxable
Employee business expense reimbursement:
1. Accountable plan.
	a.	Amounts not exceeding specified government rate for per diem or standard mileage.	Exempt	Exempt	Exempt
	b.	Amounts in excess of specified government rate for per diem or standard mileage.	Withhold	Taxable	Taxable
2. Nonaccountable plan. See section 5 for details.			Withhold	Taxable	Taxable
Family employees:
1.	Child employed by parent (or partnership in which each partner is a parent of the child).		Withhold	Exempt until age 18; age 21 for domestic service.	Exempt until age 21
2.	Parent employed by child.		Withhold	Taxable if in course of the son's or daughter's business. For domestic services, see section 3.	Exempt
3.	Spouse employed by spouse.		Withhold	Taxable if in course of spouse's business.	Exempt
	See section 3 for more information.
Fishing and related activities.			See Publication 334, Tax Guide for Small Business.
Foreign governments and international organizations.			Exempt	Exempt	Exempt
Foreign service by U.S. citizens:
1.	As U.S. government employees.		Withhold	Same as within U.S.	Exempt
2.	For foreign affiliates of American employers and other private employers.		Exempt if at time of payment (1) it is reasonable to believe employee is entitled to exclusion from income under section 911 or (2) the employer is required by law of the foreign country to withhold income tax on such payment.	Exempt unless (1) an American employer by agreement covers U.S. citizens employed by its foreign affiliates or (2) U.S. citizen works for American employer.	Exempt unless (1) on American vessel or aircraft and work is performed under contract made in U.S. or worker is employed on vessel when it touches U.S. port or (2) U.S. citizen works for American employer (except in a contiguous country with which the U.S. has an agreement for unemployment compensation) or in the U.S. Virgin Islands.
Fringe benefits.			Taxable on excess of fair market value of the benefit over the sum of an amount paid for it by the employee and any amount excludable by law. However, special valuation rules may apply. Benefits provided under cafeteria plans may qualify for exclusion from wages for social security, Medicare, and FUTA taxes. See Publication 15-B for details.
Government employment:
State/local governments and political subdivisions, employees of:
1.	Salaries and wages (includes payments to most elected and appointed officials.) See chapter 3 of Publication 963, Federal-State Reference Guide.		Withhold	Generally, taxable for (1) services performed by employees who are either (a) covered under a section 218 agreement or (b) not covered under a section 218 agreement and not a member of a public retirement system (mandatory social security and Medicare coverage), and (2) (for Medicare tax only) for services performed by employees hired or rehired after 3/31/86 who are not covered under a section 218 agreement or the mandatory social security provisions, unless specifically excluded by law. See Publication 963.	Exempt
2.	Election workers. Election individuals are workers who are employed to perform services for state or local governments at election booths in connection with national, state, or local elections.		Exempt	Taxable if paid $1,500 or more in 2012 (lesser amount if specified by a section 218 social security agreement). See Revenue Ruling 2000-6.	Exempt
	Note. File Form W-2 for payments of $600 or more even if no social security, or Medicare taxes were withheld.
3.	Emergency workers. Emergency workers who were hired on a temporary basis in response to a specific unforeseen emergency and are not intended to become permanent employees.		Withhold	Exempt if serving on a temporary basis in case of fire, storm, snow, earthquake, flood, or similar emergency.	Exempt
U.S. federal government employees.			Withhold	Taxable for Medicare. Taxable for social security unless hired before 1984. See section 3121(b)(5).	Exempt
Homeworkers (industrial, cottage industry):
1.	Common law employees.		Withhold	Taxable	Taxable
2.	Statutory employees. See section 2 for details.		Exempt	Taxable if paid $100 or more in cash in a year.	Exempt
Hospital employees:
1.	Interns		Withhold	Taxable	Exempt
2.	Patients		Withhold	Taxable (Exempt for state or local government hospitals.)	Exempt
Household employees:
1.	Domestic service in private homes. Farmers, see Publication 51 (Circular A).		Exempt (withhold if both employer and employee agree).	Taxable if paid $1,800 or more in cash in 2012. Exempt if performed by an individual under age 18 during any portion of the calendar year and is not the principal occupation of the employee.	Taxable if employer paid total cash wages of $1,000 or more in any quarter in the current or preceding calendar year.
2.	Domestic service in college clubs, fraternities, and sororities.		Exempt (withhold if both employer and employee agree).	Exempt if paid to regular student; also exempt if employee is paid less than $100 in a year by an income-tax-exempt employer.	Taxable if employer paid total cash wages of $1,000 or more in any quarter in the current or preceding calendar year.
Insurance for employees:
1.	Accident and health insurance premiums under a plan or system for employees and their dependents generally or for a class or classes of employees and their dependents.		Exempt (except 2% shareholder-employees of S corporations).	Exempt	Exempt
2.	Group-term life insurance costs. See Publication 15-B for details		Exempt	Exempt, except for the cost of group-term life insurance includible in the employee's gross income. Special rules apply for former employees.	Exempt
Insurance agents or solicitors:
1.	Full-time life insurance salesperson.		Withhold only if employee under common law. See section 2.	Taxable	Taxable if (1) employee under common law and (2) not paid solely by commissions.
2.	Other salesperson of life, casualty, etc., insurance.		Withhold only if employee under common law.	Taxable only if employee under common law.	Taxable if (1) employee under common law and (2) not paid solely by commissions.
Interest on loans with below-market interest rates (foregone interest and deemed original issue discount).			See Publication 15-A.
Leave-sharing plans: Amounts paid to an employee under a leave-sharing plan.			Withhold	Taxable	Taxable
Newspaper carriers and vendors: Newspaper carriers under age 18; newspaper and magazine vendors buying at fixed prices and retaining receipts from sales to customers. See Publication 15-A for information on statutory nonemployee status.			Exempt (withhold if both employer and employee voluntarily agree).	Exempt	Exempt
Noncash payments:
1.	For household work, agricultural labor, and service not in the course of the employer's trade or business.		Exempt (withhold if both employer and employee voluntarily agree).	Exempt	Exempt
2.	To certain retail commission salespersons ordinarily paid solely on a cash commission basis.		Optional with employer, except to the extent employee's supplemental wages during the year exceed $1 million.	Taxable	Taxable
Nonprofit organizations.			See Publication 15-A.
Officers or shareholders of an S Corporation. Distributions and other payments by an S corporation to a corporate officer or shareholder must be treated as wages to the extent the amounts are reasonable compensation for services to the corporation by an employee. See the Instructions for Form 1120S.			Withhold	Taxable	Taxable
Partners: Payments to general or limited partners of a partnership. See Publication 541, Partnerships, for partner reporting rules.			Exempt	Exempt	Exempt
Railroads: Payments subject to the Railroad Retirement Act. See Publication 915, Social Security and Equivalent Railroad Retirement Benefits, for more details.			Withhold	Exempt	Exempt
Religious exemptions.			See Publication 15-A and Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.
Retirement and pension plans:
1.	Employer contributions to a qualified plan.		Exempt	Exempt	Exempt
2.	Elective employee contributions and deferrals to a plan containing a qualified cash or deferred compensation arrangement (for example, 401(k)).		Generally exempt, but see section 402(g) for limitation.	Taxable	Taxable
3.	Employer contributions to individual retirement accounts under simplified employee pension plan (SEP).		Generally exempt, but seesection 402(g) for salary reduction SEP limitation.	Exempt, except for amounts contributed under a salary reduction SEP agreement.
4.	Employer contributions to section 403(b) annuities.		Generally exempt, but see section 402(g) for limitation.	Taxable if paid through a salary reduction agreement (written or otherwise).
5.	Employee salary reduction contributions to a SIMPLE retirement account.		Exempt	Taxable	Taxable
6.	Distributions from qualified retirement and pension plans and section 403(b) annuities. See Publication 15-A for information on pensions, annuities, and employer contributions to nonqualified deferred compensation arrangements.		Withhold, but recipient may elect exemption on Form W-4P in certain cases; mandatory 20% withholding applies to an eligible rollover distribution that is not a direct rollover; exempt for direct rollover. See Publication 15-A.	Exempt	Exempt
Salespersons:
1.	Common law employees.		Withhold	Taxable	Taxable
2.	Statutory employees.		Exempt	Taxable	Taxable, except for full-time life insurance sales agents.
3.	Statutory nonemployees (qualified real estate agents, direct sellers, and certain companion sitters). See Publication 15-A for details.		Exempt	Exempt	Exempt
Scholarships and fellowship grants (includible in income under section 117(c)):			Withhold	Taxability depends on the nature of the employment and the status of the organization. See Students, scholars, trainees, teachers, etc. on the next page.
Severance or dismissal pay.			Withhold	Taxable	Taxable
Service not in the course of the employer's trade or business (other than on a farm operated for profit or for household employment in private homes).			Withhold only if employee earns $50 or more in cash in a quarter and works on 24 or more different days in that quarter or in the preceding quarter.	Taxable if employee receives $100 or more in cash in a calendar year.	Taxable only if employee earns $50 or more in cash in a quarter and works on 24 or more different days in that quarter or in the preceding quarter.
Sick pay. See Publication 15-A for more information.			Withhold	Exempt after end of 6 calendar months after the calendar month employee last worked for employer.
Students, scholars, trainees, teachers, etc.:
1.	Student enrolled and regularly attending classes, performing services for:
	a.	Private school, college, or university.	Withhold	Exempt	Exempt
	b.	Auxiliary nonprofit organization operated for and controlled by school, college, or university.	Withhold	Exempt unless services are covered by a section 218 (Social Security Act) agreement.	Exempt
	c.	Public school, college, or university.	Withhold	Exempt unless services are covered by a section 218 (Social Security Act) agreement.	Exempt
2.	Full-time student performing service for academic credit, combining instruction with work experience as an integral part of the program.		Withhold	Taxable	Exempt unless program was established for or on behalf of an employer or group of employers.
3.	Student nurse performing part-time services for nominal earnings at hospital as incidental part of training.		Withhold	Exempt	Exempt
4.	Student employed by organized camps.		Withhold	Taxable	Exempt
5.	Student, scholar, trainee, teacher, etc., as nonimmigrant alien under section 101(a)(15)(F), (J), (M), or (Q) of Immigration and Nationality Act (that is, aliens holding F-1, J-1, M-1, or Q-1 visas).		Withhold unless excepted by regulations.	Exempt if service is performed for purpose specified in section 101(a)(15)(F), (J), (M), or (Q) of Immigration and Nationality Act. However, these taxes may apply if the employee becomes a resident alien. See the special residency tests for exempt individuals in chapter 1 of Publication 519.
Supplemental unemployment compensation plan benefits.			Withhold	Exempt under certain conditions. See Publication 15-A.
Tips:
1.	If $20 or more in a month.		Withhold	Taxable	Taxable for all tips reported in writing to employer.
2.	If less than $20 in a month. See section 6 for more information.		Exempt	Exempt	Exempt
Worker's compensation.			Exempt	Exempt	Exempt