When FUTA applies
You owe FUTA if you paid wages of $1,500 or more in any calendar quarter, or had at least one employee for some part of a day in any 20 different weeks. The tax is 6.0% on the first $7,000 of wages per employee per year. Employers who pay state unemployment tax timely receive a credit of up to 5.4%, leaving an effective FUTA rate of 0.6% — about $42 per employee per year.
Annual filing
Form 940 is filed annually by January 31. If you make timely FUTA deposits in full, you get an extra 10 days to file. Deposits are required quarterly only if your accumulated FUTA liability exceeds $500 at the end of any quarter; otherwise it carries forward.
Credit reduction states
States that have outstanding federal unemployment loans can lose part of the 5.4% FUTA credit, raising the effective FUTA rate for employers in those states. The IRS publishes the credit-reduction list each November, so factor it into your January 31 filing math.
Excluded wages
Some wages are exempt from FUTA, including payments to the owner's spouse, children under 21, and parents (in certain entity structures), and most fringe benefits. Be careful — FICA exemptions and FUTA exemptions are not always identical.
Coordination with state unemployment
Each state has its own unemployment insurance return and rate. The state base wage and contribution rate vary widely. Your state-specific obligations are independent of FUTA but must be paid timely to preserve the federal 5.4% credit.
Where the numbers actually flow
Every dollar that touches Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return has a downstream destination — usually a line on Form 1040, a schedule that feeds Form 1040, or another supporting form. Tracing the flow once, with last year's return open in front of you, makes the form intuitive in a way that reading the instructions cold rarely does. The high-leverage takeaway is that small-business returns are interconnected: a change on one form ripples through three or four others, and a software package or preparer that does not recompute every dependent line on every change can produce silently incorrect results.