 In this presentation, we will fill out the form 940, Employer's Annual Federal Unemployment, FUTA Attacks. A few things we want to cover before getting into the numbers for the 941. One is just to keep it separate form from. Support Accounting Instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course. Each course then organized in a logical reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files, and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. The form 940. The numbers being so closely related can make us think that they are related. And the number 940 being before 941 numerically can make us think that possibly the 940 is the quarterly form and the 941s are the yearly form or the annual form. And that's not the case. The 940 form is the annual summary form. The 941s are going to be the quarterly form. The other common thing that this could lead us to believe would be that the 940 is recapping the information for the 941s. And this isn't the case either. This is wrong. But it would make a logical sense for us to think, well, the 940 forms are going to give us the data on a quarterly basis for payroll tax owed to the government. And then the 940 at the end of the year, so the 941s give us quarterly, the 940 at the end of the year, is going to resummarize that again as of year end. And that's not the case here. What is the case is that the 941s have different federal payroll taxes than the form 940, meaning the 941 covers the big payroll taxes of Social Security, Medicare, and federal income tax. Whereas the 940, the end of the year tax return, or the entire year return, only covers FUTA, Federal Unemployment Tax, which is relatively small. So the way you want to think about this, why would that happen? Why do they do that? The 940, actually the way we're doing FUTA kind of lines up closer to how we might think of our forms for our taxes, our 1040s, meaning we typically have our 1040s, our employers take the money out of our wages. In other words, we make the payments throughout the year. And then we report what has happened at the end of the year one time on our form 1040, and we tell the IRS, hey, here's what we earned, here's our calculation of our taxes, and here's what we already paid. And in a perfect world, they would be the same, and we wouldn't get a refund or own any taxes. Obviously, it's not a perfect world, and that's too complicated to happen on a form 1040, but that's the idea. The same thing is going to be true with the 940, which matches that same kind of scenario. We're going to say we're going to make the payments throughout the year, just like we do with our income taxes. We will report it one time at the end of the year, and hopefully our payments that we have made match our liability calculation, which they likely will on the form 940, unlike our individual income tax reforms with the 1040. Why don't we do that with the 941s? Why does it differ? The 941s are a lot bigger of the number, so the IRS is more concerned with the 941s and want actual more reporting. They want not just a year in form, they want a quarterly form. So they want payments during the year, and they want to verify that those payments are lining up and being done correctly on a quarterly basis rather than an annual basis. So in other words, they're giving us a little bit more leeway on FUTA and a little less reporting requirements because probably the reason, and again, if you're looking for justification or good reasons within the tax code, you might be looking a while, but theoretically, I would think the reason would be that the amount is smaller, and therefore they're willing to allow us to just have to the annual reporting. So now that we have that, we're calculating the FUTA. It's going to be the smaller tax for, and we only need the one form for the end of the year. We've got the same EIN number that we will be reporting, the employer identification number, name, and then the business and the trade. Over here, we don't have the quarters, of course, because we're not talking about quarters. If these apply, we would check them like an amended return or no payments to employees or the final, if it's the final return because the business isn't going to have payroll or going out of business or whatever, then we would have that. We're going to go down to part one. First thing, if you have had, if you had to pay state unemployment tax in one state only, enter the state here. We're going to give the state of Nevada, and one reason is because they typically have less taxes, oftentimes, or it may be more simplicated, but any state would typically be similar. You might be asking, why do we need to know what state it is if the federal tax form? What does it matter? Doesn't the Fed treat all states the same? And the reason is because remember that the federal tax here is tied to the state tax in some way, meaning the way the federal law was written is that it said, you know, we're going to have an exemption. You can pay less taxes if there's a state tax, which basically mandated the states to have some minimum type of SUTA. So for that reason, there's kind of a link here between FUTA and SUTA. And we need to know, did you pay SUTA tax so that we know what rate we need to apply for FUTA? So the state tax for the federal tax. So then B says if you had to pay state unemployment tax in more than one state, so we're not going to deal with that here. And but you can see what the goal here, same kind of goal, did you pay state taxes? If you did, then you probably going to get to have a lower federal tax rate. Two, if you paid state wages in a state that is subject to credit reduction, we're not going to deal with that here. Okay, now we're going to get to the actual calculations. So line three says total payments to all employees. So if we go back to our worksheet, we're looking for total payments to all employees. And here, we're going to pick up our total. So I'm scrolling down to our worksheet. And so remember, I'm going to scroll back up, we've got the pains frozen, which is on if you put your cursor on A4, home tab, Windows group, freeze pains and freeze the pains. Then if we scroll down, we're looking at our data that we have summed up down here, it should already be summed up in the totals. So we have the third quarter totals, we got the fourth quarter, and we've got all the totals. I'm going to make the total column now the green column, that's what we want to work with. So I'm going to ungreen this column, going to select the entire column, going to ungreen it or make it blue, let's make it blue instead of ungreening. And then we're going to right click on it and go to the paint and make it blue. And if that blue is not there, you can go a little color wheel down here, standard. And that that's the blue we're using right there. It has to we have to use a confusing blue because just to confuse people. Okay, so then we're going to go down here and we're going to make this green, the totals are what we're going to be using. So we'll highlight all this data. And then right click on it and make it green, we'll make it that light green. And that's the data that we want. We're going to scroll down just a little bit. And just so we can just see that data and limit the confusion, limit my mistakes. Any help in that regard is good. So now we're going to pick up the wages. Now note, the wages we're going to pick up is total earnings here, total earnings. Not like we picked up on the 941s, which was total earnings less, something like the 401k, or if there's a cafeteria plan, we're just going to be picking up the total earnings. So in other words, if we add up the 941s, it may not add up to the total earnings on the 940 if there are things like a retirement plan and group or not group insurance, but a cafeteria plan. So we're going to go back to our form here. And we're looking for the 940. And we will enter that data up top. So that's going to be the 241 comma 206 tab 00. All right, now here's where it gets a little confusing. We got payments exempt from Fuda, we're not going to have anything there. And then it says total of payments made to each employee in excess of 7000, which is a kind of funny calculation. So they want they want the number that was over the 7000. And then down here it says the subtotal, which is going to be adding these two. And then line seven says total taxable Futa wages. So what we actually have done in our worksheet is calculate line seven total taxable Futa wages. We didn't calculate the amount that's over the $7000 limit. Because why would we do that? You know, we calculated the amount that was taxable for Futa and the tax. So what we're going to do is kind of back into this number that we're going to fill out what we know this number and the actual tax, then we'll back into this number. So that's kind of the tricky thing. The way I usually have seen this to think about this. So on our worksheet, we have Fuda wages of 28,000. It's less than the total wages because of the cap of 7000. Remember that just about everybody's going to hit that cap if they've been working for the entire year. The only time someone's not going to hit the 7000 cap typically is if they haven't worked the entire year. If we, meaning if we hired someone in in December, then they may not hit the cap. Or if we laid someone off throughout the year before they hit the cap, then they wouldn't. But for us, we've had four employees. So we had four employees. They all hit the cap times 7000. And so that's 28,000. So nothing over 28,000 is going to be included because that's what the cap is. So we're going to pick that 28,000 up. And then if we look over here, we already calculated Futa, which is going to be that 28,000 times .006 or 168. So we already know those numbers. So if we go back over here, we can say, well, I know this number is 28,000. Let's put a comma there. Make it look nice. 28,000, zero, zero. And then we'll calculate it again. So it says 28,000 times .006. Notice using that lower rate, the Futa rate after Futa taxes. If you've paid Futa taxes, .006, that's the 168. So the tax is only 168. Notice how much lower it is than Social Security and Medicare and FIT, Federal Income Tax. So we know that now we just need to figure out what this number is. And if this is our total wages, and this is the Futa wages, the difference then will be total of payments made to each employee in excess. So we just need to subtract those out. So we'll pull the calculator here. We're going to say 241, 206 minus 28,000 gives us 213, 206. So we'll put that here. 213, 206, tab, zero, zero. And that's really the essence of the form. So if we scroll down, then we then have part three, if there's any adjustments. And so if all of the taxable Futa wages you paid were excluded from the state unemployment tax, multiply here. So meaning if you weren't subject to state tax and you didn't pay the state tax, in essence, you'd have to pay a higher Futa tax. Remember they're linked. So for all practical purposes, for most of the time, it's this low rate for Futa because Futa taxes are paid. But if in some situation they're not, or whenever you read the law, note it'll be confusing because technically the Futa tax rate is higher. And then there's kind of like an exemption if you pay state taxes, SUTA, which pretty much every state requires. So that in essence means that this is the actual rate for most practical purposes. So that's basically part three. If we go down to part four, then we're going to say total Futa tax after adjustments is the 168 tab. And then the Futa tax deposit. So same thing as with the 941. This is the liability. Then we need the deposit, which should be the same. If we pick up our number, we should have already made the payment. In other words, we're not picking it up here though. This is its liability calculation. How do we know how much we deposit from the GL? So we're going to go back over here. We're going to say here's all the cash payments we made. If we go back to the actual cash payments from our journal entry, we can see that this is our cash payment consisting of Social Security Medicare, Futa, SUTA, FIT. And then here's our second payment that was made in October that includes Futa, Futa, Futa. And then in November, we have the same payment journal entry, but it's a lot smaller, not including Futa or SUTA. Why? Because everybody hit the cap, which will typically be the case. We'll make a lot of SUTA and Futa payments in the first quarter of the first months of operation, first payroll processing of a period of a year, and then it'll go down drastically. So these are the payments that we have made. So if we add these up, this plus this adds up to that same 168. So it's the same number. So we're like, we're saying that we're good. We're good. 168-00. So we're telling the IRS the story. Here's how much we owe. We can see the calculation. You can see the liability. Here's how much we paid. And so we can tell them that same story. And hopefully we owe nothing after that point. Then if we scroll down, they want here in line 16, report the amount of your Futa tax liability for each quarter. Do not enter the amount you deposited. You deposited if you had no liability or quarter leave them blank. So we want to get the liability per quarter. I've already filled it out in the third quarter here. So if we go over, we may question that. You may say, that doesn't make sense. If I look at the deposits, the deposit was made here in October. And that's like the fourth quarter, October, November, December. But remember that that deposit was for September's liability. In other words, if we need to get this from the register, not the deposits, if we go back to the register, we can see our quarterly breakout. The whole 168 happened in the third quarter. None of it in the fourth quarter, because everybody hit the limit by that time. So if we go back to our 940 over here, here, that's not it. That's not it. Here, we're going to say it all happened in the third quarter. It all took place in the third quarter. And then the total will be the third quarter.