IRS Releases Draft of Form 940

In our previous blog, we discussed the Government Changes for Payroll in 2012.

Although only a draft of the revised Form 940, the Employer’s Annual FUTA Tax Return, is available we will outline the expected differences between the new and old form.

Form 940 splits reporting to account for surtax expiration

The draft of Form 940 includes the following changes:

Part 1: Lines 1a and 1b have been reformatted and their checkboxes aligned.

Part 2: Line 7 has been split into parts a-e, as shown below:
7a) Total taxable FUTA wages (line 3 – line 6 = line 7a);
7b) Line 7a FUTA wages paid before 7/1/2011;
7c) = 7b x .008
7d) Line 7a FUTA wages paid after 6/30/2011;
7e) = 7d x .006

Part 3: Line 11 no longer specifically references Line 3 of Schedule A (Form 940)
when instructing the employer to enter the credit reduction amount. This indicates
that Schedule A will undergo some reformatting to accommodate the expected
increase in the number of FUTA credit reduction states for 2011.

Note: The 0.2% FUTA surtax expired on June 30, 2011. The permanent gross 38 FUTA tax rate is 6.0%. The 0.2% surtax was added in 1976 and had been in effect since then. Before expiration of the 0.2% surtax, the net FUTA tax employers paid after taking credit for up to 5.4% of state unemployment taxes paid was 0.8%.

With the expiration of the surtax, the net FUTA rate is reduced to 0.6% on FUTA taxable wages paid beginning July 1, 2011 (0.8% - 0.2% = 0.6%). Additionally, employers need to separately track FUTA taxable wages that were paid before July 1, and FUTA taxable wages paid after June 30.

Click here for a full version of the draft of Form 940 (via irs.gov)

Form Schedule A Reformatted:

The IRS has release a draft of Schedule A (Form 940) which was reformatted to allow for increase in credit reduction states.
The form has undergone significant changes to allow for the possibility that there could be as many as 23 FUTA credit reduction states in 2011.

Instead of separate sections that indicate the states in which an employer pays state unemployment taxes and calculating any possible FUTA credit reduction in those states, there will be one line for each state. Click here for the draft.

The employer will mark a checkbox for each state to which it pays state unemployment taxes at the beginning of the line. The employer will then calculate any applicable credit reduction for that state on the same line. This is done by multiplying its FUTA taxable wages in the state by the credit reduction percentage shown on the form. If the credit reduction percentage is zero, the FUTA taxable wages need not be entered. The total of all the credit reduction amounts will be entered on Line 11 of Form 940.

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