21.7.3  Unemployment Taxes

Manual Transmittal

August 27, 2014

Purpose

(1) This transmits revised IRM 21.7.3, Business Tax Returns and Non-Master File Accounts, Unemployment Taxes.

Material Changes

(1) This IRM was revised to reflect the following changes:

IRM SUBSECTION DESCRIPTION
IRM 21.7.3 Various grammatical and editorial changes throughout.
IRM 21.7.3.3.2 Removed outdated information.
IRM 21.7.3.4 Expanded paragraph to explain that the IRM cannot cover all situations and the assistor may need to consult the lead/manager for assistance.
IRM 21.7.3.4.1.1 Updated paragraph
IRM 21.7.3.4.2(3) Added paragraph for telephone assistors to follow procedures in IRM 4.19.5.4.13
IRM 21.7.3.4.2(4) Updated paragraph to include numbered amended returns routed to Cincinnati FUTA Case Processing.
IRM 21.7.3.4.3 IPU 14U0540 issued 03-21-2014 Added new procedures for manual certification requirements.
IRM 21.7.3.4.3 Added additional information regarding manual certification requirements.
IRM 21.7.3.4.10(2) IPU 13U1684 issued 11-25-2013 Updated credit reduction states and rates for tax year 2013
IRM 21.7.3.4.14(4) Deleted table and added a link to BMF e-file identification codes.
IRM 21.7.3.4.5 IPU 14U0887 issued 05-20-2014 clarified how to adjust wages on multiple state adjustments when credit reduction and non-credit reduction states are involved.

Effect on Other Documents

IRM 21.7.3 dated September 17, 2013 (effective October 1, 2013), is superseded. Interim Guidance number 13U1684 issued 11-25-2013, 14U0540 issued 03-21-2014, and IPU 14U0887 issued 05-20-2014 are incorporated into this IRM.

Audience

The primary users of this IRM are Wage and Investment employees. The IRM is intended for Customer Account Service issues involving unemployment returns.

Effective Date

(10-01-2014)


James P. Clifford
Director, Accounts Management
Wage and Investment

21.7.3.1  (10-01-2012)
Unemployment Taxes Overview

  1. Unemployment insurance is a system which provides benefits for unemployed workers. This section contains instructions for adjusting Form 940, as well as requests for recertification.

  2. The Federal Unemployment Tax Act (FUTA) provides for cooperation between states and the federal government in the establishment and administration of unemployment insurance. Under this system, the employer is subject to payroll taxes levied by the federal government and the state government.

  3. Only the first $7,000 paid to each employee is subject to FUTA tax.

21.7.3.2  (10-01-2011)
What Are Unemployment Taxes?

  1. Unemployment taxes, which federal and state governments levy against covered employers, subsidize state administered unemployment insurance programs and create a fund that is used to pay unemployment benefits to workers.

    1. From this fund, payments are made to employees who become unemployed.

    2. Tax is reported and filed on Form 940.

  2. Tax applies to payments such as:

    • Salaries

    • Wages

    • Commissions

    • Fees

    • Bonuses

    • Vacation allowances

    • Amounts paid to temporary or part-time employees

    • Value of goods, lodging, food, clothing, and other non-cash fringe benefits if not excludable pursuant to IRC 3306(b)(15)

21.7.3.3  (01-01-2005)
Unemployment Taxes Research

  1. This section provides research procedures for unemployment taxes.

21.7.3.3.1  (10-01-2011)
Form 940 Filing Requirements

  1. Form 940 is an annual return covering the period January 1 through December 31.

    1. It is due on or before January 31, following the close of the calendar year. (If the employer deposits all FUTA tax when due, the due date is extended until February 10, following the close of the calendar year.)

    2. The Master File Tax (MFT) is 10.

    3. The tax class is 8.

  2. Employers (other than agricultural or household employers) are liable to file if they meet either of the tests below:

    1. They paid wages of $1,500 or more in any calendar quarter for the current or preceding year.

    2. They had one or more employees (including full-time, part-time, and temporary) at any time in each of twenty calendar weeks during the current or preceding year.

  3. Agricultural employers are liable to file if they meet either of the tests below:

    1. They paid cash wages of $20,000 or more to agricultural workers in any calendar quarter in the current or preceding calendar year.

    2. They employed 10 or more agricultural workers for some portion of a day during any 20 different weeks in the current or preceding calendar year.

    Note:

    Aliens admitted to the U.S. on a temporary basis to perform farm work (also known as "H-2(A) visa workers" ) are counted to determine if one of the two (agricultural employer) tests set forth above are satisfied. Wages paid to H-2(A) visa workers are exempt from FUTA tax.

  4. Household employers are liable if they paid $1,000 or more in any calendar quarter during the current or preceding year for work in:

    • A private home

    • A local college club

    • A local chapter of a college fraternity or sorority

    Note:

    To report FUTA tax, household employers must file Schedule H (Form 1040) with their Form 1040 series return, unless they have other non-household employees, in which case the employer may include the household employees' FUTA tax on Form 940 instead. If household employees are included on Form 940, the employer must file the appropriate employment tax return (e.g., Form 941, Form 943 or Form 944) to report the household employees' social security, Medicare, and withheld federal income taxes. If a trust is a household employer, the trust must file Schedule H (Form 1040) with Form 1041, unless it has other non-household employees, in which case the trust may include the household employees' FUTA taxes on Form 940 and report their social security, Medicare, and any withheld federal income taxes on Form 941, Form 943 and/or Form 944, respectively.

21.7.3.3.2  (10-01-2014)
Deposit Requirements and Payments (Form 940)

  1. For deposit requirements see:

    • Publication 15, Circular E, Employer's Tax Guide

    • Publication 51, Circular A, Agricultural Employer's Tax Guide

    • Form 940 instructions or

    • IRM 20.1.9, Form 940.

  2. The FUTA threshold to carry a quarterly tax liability to the next quarter is $500.

  3. Balance due payments for Form 940, including balances that are up to ten years past due, can be made over the phone or by internet using a credit card. Payments can be made through one of three authorized third-party service providers who will obtain credit authorization during the transaction and provide a confirmation number as proof of payment. For specific information on business payments made by credit card, see IRM 21.2.1.48.5, Credit or Debit Card Payments (Pay by Phone or Internet).

    Reminder:

    Federal Tax Deposits (FTDs) cannot be paid by credit card. Taxpayers currently required to make FTDs must utilize one of the available Electronic Funds Transfer (EFT) deposit systems. See IRM 20.1.4.2, Authorized Deposit Methods, for more information.

21.7.3.3.3  (01-01-2006)
Wages Subject to FUTA Tax

  1. In arriving at the taxable wages subject to FUTA tax, the taxpayer subtracts the following amounts from the total payments made to all employees:

    • Amounts paid to each employee over $7,000

    • Amounts paid which are exempt from FUTA tax

  2. Information on exempt payments can be found in Form 940 Instructions, Publication 15, (Circular E), Employer's Tax Guide, and Publication 15-B, Employers Tax Guide to Fringe Benefits. Form 940 has checkboxes to indicate exempt payments.

21.7.3.3.4  (10-01-2013)
Contributions (FUTA)

  1. Contributions are payments which state laws require employers to make to an unemployment fund. These payments are sometimes referred to as "state unemployment taxes" and are contributions only to the extent they are not deducted from the employee's pay.

  2. An employer is permitted to use state unemployment tax contributions as an offset against the federal unemployment tax as a normal credit. Any timely contributions (made by the due date of Form 940) to the state (including the District of Columbia, Puerto Rico, and the U.S. Virgin Islands) unemployment fund increases this credit, which reduces the tax rate on Form 940.

21.7.3.3.5  (01-01-2007)
Experience Rates (FUTA)

  1. Generally, employers are assigned experience rates by the state in which they do business.

    1. The rate is determined by the unemployment record of each employer and is the percentage at which contributions are made to the state unemployment fund.

    2. Employers who stabilize employment are rewarded in the form of reduced experience rates.

  2. The contributions paid according to the state employment insurance laws are permitted to be credited against the employer's federal unemployment tax. The credit is limited to 5.4% of the federal taxable wages.

21.7.3.3.6  (10-01-2013)
Federal Tax Rate (FUTA)

  1. Employers pay FUTA on the first $7,000 of each employee's annual wages. The maximum FUTA tax rate is 6.0% (.060).

    Note:

    For tax year 1983 through June 30, 2011, the gross FUTA tax was increased by a .002 surtax to .062. The additional surtax legislation expired July 1, 2011.

  2. An employer is allowed two kinds of credit against FUTA tax.

    • Normal credit, based on contributions

    • Additional credit, based on experience rate

21.7.3.3.7  (10-01-2012)
Successor Employer- Computer Condition Code (CCC "5" )

  1. If the taxpayer checks box "b" on Form 940 or Form 940-PR, C&E (Code and Edit) codes the return with a CCC "5" indicating the taxpayer is a successor employer.

  2. This designation indicates the employer is entitled to certain credits based on payments made by the predecessor employer. Refer to Publication 15 (Circular E), Employer's Tax Guide, for more information.

21.7.3.4  (10-01-2014)
Unemployment Taxes Procedures

  1. This section contains procedures for unemployment taxes.

    Reminder:

    This section attempts to address situations most frequently encountered when working unemployment tax issues. Instructions and information contained in this and other applicable IRMs cannot address every possible issue that may arise. In some cases, it may be necessary to consult your lead and/or manager to determine the necessary corrective action. Any issue/question that cannot be resolved at the site-level or that could have Servicewide impact should be elevated to the HQ analyst with program responsibility.

21.7.3.4.1  (10-01-2013)
Certification (FUTA)

  1. Certification of state credits is made by Small Business Self Employed (SB/SE) Campus Compliance employees per IRM 4.19.5, Certification of State Federal Unemployment Tax Act (FUTA) Credits.

21.7.3.4.1.1  (10-01-2014)
FUTA Case Processing (FCP) and Other Certification Verifications

  1. The FCP database is used by the FUTA team to reconcile cases determined to have discrepancies. The FCP database:

    1. Contains information for the three years prior to the current processing year and

    2. Is updated each May to drop the earlier year and add the subsequent year.

    See IRM 4.19.5.3.1, FUTA Case Processing System (FCP), for more information.

21.7.3.4.2  (10-01-2014)
FUTA Certification Program - Discrepancy Cases

  1. Discrepancy cases result from the computerized and manual certifications of payments to State Unemployment Insurance Agencies.

  2. Form 940 adjustments processed under this program can be recognized by the following non-refile blocking series (BS):

    1. 50-Non-zero certification (when the State certifies wages/contributions).

    2. 51-Zero certification (when the State certifies no record of wages/contributions).

  3. If contact is made via the toll-free line, follow procedures in IRM 4.19.5.4.13, Customer Service Representative (CSR) Information.

  4. Route all correspondence and amended returns (both numbered and unnumbered) due to a FUTA assessment, or replies to a possible assessment to:

    Cincinnati FUTA Case Processing
    201 West River Center Blvd
    Covington, KY 41011
    Stop 815G

21.7.3.4.3  (10-01-2014)
Manual Certification Required/Not Required (FUTA)

  1. Manual certification is required when the transaction code (TC) 150 is an IRC 6020 (b) assessment and

    • the taxpayer is computing the tax at a rate less than the full applicable rate (See IRM 21.7.3.3.6, for the applicable rate.) or

    • the taxpayer is filing a zero return and BMFOLU shows wages in the "Processed (W2)" column for that period.

    Note:

    See IRM 21.7.9.4.1.6, Duplicate Filing Conditions Involving Returns Prepared Under IRC Section 6020(b), for additional procedures on adjusting IRC 6020(b) accounts.

  2. If a manual certification is required, follow local procedures to prepare Form 940-B, Request for Verification of Credit Information Shown on Form 940, and forward to your FUTA liaison. However, if the taxpayer is an agent or contractor for the state, IRC 7602(c) requires the taxpayer be notified in advance when a third party contact is necessary to determine tax liability (this should occur very rarely). If this is the case, the steps below are mandatory.

    1. Call the taxpayer to advise of the recertification request being sent to the State.

    2. Document the case file with the name of the person contacted (person must have authority to prepare taxpayer's Form 940) and the time and date you spoke with that person.

      Note:

      If the taxpayer cannot be contacted by phone, Letter 3345C must be sent to the taxpayer. The Form 940-B, Request for Verification of Credit Information Shown on Form 940, cannot be sent until 10 days after the Letter 3345C is initiated. (If the taxpayer is contacted by phone, the Form 940-B can be sent immediately after contact.)

    3. Prepare Form 12175, Third Party Contact Report Form, immediately after contacting the taxpayer by phone or by Letter 3345C.

    4. For more information on notification of third party contacts and preparation of Form 12175, see IRM 5.19.5.9, Notification of Third Party Contact.

  3. Manual certification is not required when the transaction code (TC) 150 is an IRC 6020 (b) assessment and

    • The taxpayer is computing the tax at the full applicable rate
      OR

    • The taxpayer is filing a zero return and

    • TC 599 cc 08 is posted on the tax module and

    • CC BMFOLU does not show wages in the "Processed (W2)" column for that period.
      OR

    • The taxpayer is filing a zero return and

    • A signed internal request is received from an area office (e.g., from a revenue officer) stating the taxpayer was out of business for the entire tax year(s) of the IRC 6020(b) assessment(s).

  4. If a manual certification is not required, input the adjustment using established procedures.

21.7.3.4.3.1  (10-01-2013)
FUTA Liaison Responsibilities

  1. Designated employees act as liaisons between the Internal Revenue Service and State Labor Department Agencies. These employees are responsible for submitting the completed Form 940-B for certification.

  2. Liaisons will use the following guidelines for initial and subsequent requests.

    If Then
    Initial request Allow 30 calendar days for response
    No response after 1st request Notate on Form 940-B 2nd request and resubmit. Allow 14 calendar days for response.
    No response after 2nd request Contact the agency representative by phone for certification. Contact information can be found on Servicewide Electronic Research Program (SERP), on the Who/Where tab listed as follows: State Labor Department Form 940 Certification Contacts. Inform the contact of your previous requests and allow 3 work days for the requested information.
    No response after 3rd request Contact your Planning and Analysis (P&A) staff who will contact the IRM author for assistance.
  3. When the recertification is received from the State, forward it to the initial requestor for case resolution. See IRM 21.7.3.4.8 for additional information.

21.7.3.4.4  (10-01-2013)
Additional Credit (FUTA)

  1. Employers who have been granted a state experience rate lower than 5.4% by a state for all or part of a year are entitled to an "additional credit." The additional credit is equal to the difference between:

    1. Maximum allowable federal credit (taxable federal wages times the federal credit rate); and

    2. State taxable wages multiplied by the employer's experience rate, if rate is less than maximum federal credit rate.

  2. Credit for contributions paid late (after the due date of the Form 940) is limited to 90% of the amount which would have been allowed as a credit for such contributions if such contributions were paid by Form 940 due date.

  3. A worksheet is provided in the Form 940 instructions. The worksheet is used to compute the credit if some of the wages paid by the employer were not subject to state unemployment tax or if the employer paid any state unemployment tax late.

21.7.3.4.5  (05-20-2014)
Multiple State Cases (FUTA)

  1. Form 940 filers must complete and file Schedule A, Multi-State Employer and Credit Reduction Information, with their Form 940 if wages were paid to employees in more than one state, and/or wages were paid in any state subject to credit reduction. See IRM 21.7.3.4.10, Credit Reduction States, for additional information.

  2. Multiple state cases are computed the same as single state cases with one exception - additional credit must be computed individually for each state. See IRM 21.7.3.4.4, Additional Credit (FUTA), for computation procedures.

  3. When processing amended returns, adjust tax and wages using the primary state item reference codes. See IRM 21.7.3.4.7, Item Reference Codes (Form 940), when determining the state codes. If unable to determine the primary state, adjust the state indicating the highest wages paid. If unable to determine the state with the highest wages paid, adjust the state listed on the address of record. When the credit reduction state has been adjusted and there are left over wages, follow procedures above to determine what state to adjust. If the primary state, the state indicating the highest wages paid, and the state listed as the address of record are all credit reduction states, then adjust wages of any state shown on the Schedule A that is not a credit reduction state.

    Exception:

    Credit reduction states wages must always be adjusted for the exact amount of the change. The State of Indiana is a credit reduction state for tax year 2012. Therefore, when processing an amended return involving the State of Indiana for tax year 2012, you must adjust the wages for the correct amount.

    Example:

    Taxpayer is amending total wages by $30,000. Only $10,000 were paid in the State of Indiana. The account indicates Illinois is the primary state. Your item reference codes for the wages will be: WIN for $10,000 and WIL for $20,000. The primary state of Illinois will be used for the tax change using item reference code TIL.

    Reminder:

    Recertification must be obtained from each state when it meets the criteria in IRM 21.7.3.4.3(1), Manual Certification Required (FUTA).

  4. See IRM 4.19.5.4.8.9, Multi-State Cases, for more information.

21.7.3.4.6  (01-24-2011)
Aggregate Returns

  1. Only agents of home care service recipients authorized under section 3504 may file an aggregate Form 940. See Rev. Proc. 80-4, 1980-1 C.B. 581 and Notice 2003-70, 2003-43 I.R.B. 916.

    Note:

    To request authorization to act as an agent for an employer, Form 2678, Employer/Payer Appointment of Agent, must be filed with the Service.

  2. Some aggregate returns may be distinguished by showing :

    • "State"

    • "City"

    • "County"

    in the entity area, or

    • "Notice 2003-70"

    • "Fiscal Agent"

    • "Fiscal intermediary"

    • "Employer Agent"

    • "Choreworkers"

    noted on the return. See IRM 3.11.154.3.17, Aggregate Returns and Choreworkers, for additional information.

  3. Beginning with the annual Form 940 for 2010, aggregate filers must complete Schedule R (Form 940), Allocation Schedule for Aggregate Form 940 Filers, and submit with the Form 940. See the following subsection for additional information regarding the Form 940 (Schedule R).

21.7.3.4.6.1  (10-01-2012)
Schedule R (Form 940): Allocation Schedule for Aggregate Form 940 Filers

  1. The IRS has developed Schedule R (Form 940), Allocation Schedule for Aggregate Form 940 Filers, that allocates the aggregate wage, tax, credit, deposit and payment amounts reported on Form 940.

  2. Schedule R provides the IRS with client-specific information to support the totals reported by an agent on the aggregate return. It includes an allocation line for each client showing a breakdown of its wages and tax liability for the tax period. The instructions for each Schedule R explain all the information a section 3504 agent must provide with respect to each client reported on the aggregate form. When a Form 940 is processed and a Schedule R (Form 940) is attached, a Schedule R Indicator (SRI) will be posted to MF.

  3. If a taxpayer filed a Schedule R (Form 940) with his original return and he needs to correct the previously filed Form 940, then a revised Schedule R (Form 940) should be submitted with the amended Form 940. However, when processing an amended Form 940 for an aggregately filed Form 940, (regardless if a Schedule R indicator is present)≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    If a taxpayer is required to file a Schedule R (Form 940) and does not do so with his original return, he may submit another Form 940 with a Schedule R (Form 940) attached, which may create a TRNS 193. If so, follow existing procedures in IRM 21.7.9, BMF Duplicate Filing Conditions.

  4. The chart below indicates procedures for most Schedule R inquiries:

    If And Then
    Loose Schedule R is received The original return has posted (regardless if a Schedule R indicator is present) No additional action is needed.

    Note:

    If working a Correspondence Imaging System (CIS) case, add a case note to identify what was received and close the CIS case.

    Loose Schedule R is received The original return has not posted and the original processing time for Form 940 has not elapsed Suspend loose schedule pending posting of original return. See IRM 21.3.3.5.2, Loose Schedules, for more information.
    Loose Schedule R is received The original return has not posted and the original processing time for Form 940 has elapsed Contact taxpayer preferably by phone, to obtain a signed copy of the original return and suspend case for 40 days.
    1. If the taxpayer replies with a copy of the original return, process accordingly.

    2. If the taxpayer does not reply, reject the Schedule R back to the taxpayer requesting the original Form 940 (and accompanying Schedule R) be filed.

21.7.3.4.7  (10-01-2009)
Item Reference Codes (Form 940)

  1. All increases and decreases in tax must have item reference codes showing the tax associated with the state where the adjustment is indicated.

    1. The total of the item reference code amounts for tax must equal the TC 29X tax adjustment.

    2. The three-digit item reference code for the tax portion of the adjustment is comprised of a "T" followed by the two digit state code.

  2. If adjustment is due to an increase or decrease in wages, an item reference code for wages is also required. The three-digit item reference code for the wage portion is comprised of "W" followed by the two-digit state code.

  3. If more than one state is involved, input the adjustment using the primary state. If unable to determine the primary state, adjust the state which indicates the highest wages paid. If unable to determine the state with highest wages paid, adjust the state listed on the address of record. Caution must be used however, if any of the states being amended was a credit reduction state for that particular tax year. In that case, each credit reduction state wage adjustment must be input. See IRM 21.7.3.4.5, Multiple State Cases, (FUTA), for an example.

  4. If no increase or decrease to tax or wages is made, item reference codes are not needed.

21.7.3.4.8  (10-01-2013)
Claims and Requests for Adjustments (Form 940)

  1. Consider prior adjustments on the account.

  2. Process responses to manual certification requests as follows:

    If Then
    certification request indicates no payments were made to the state Do not adjust to taxpayer's figures. Input TC 290 .00 to release the -A freeze and send Letter 380C, State Certification Tax Adjustment Explained: Form 940, to inform the taxpayer their contributions to the State could not be verified.
    certification request indicates payments were made to the state. complete the worksheet in the Form 940 instructions to verify the correct tax and adjust accordingly. If the adjustment is different than what the taxpayer expected, correspond with Letter 380C explaining the changes.
  3. Interest on a refund is not allowable when taxpayer reduces the tax as a result of an increase in state credits.

    1. Input a TC 291 with a secondary TC 770 .00 to restrict credit interest.

    2. Only input TC 770 .00 when there is a decrease to tax and no change to wages.

    Note:

    See IRC 6413(d) for additional information.

  4. If module being adjusted contains TC 18X, refer to IRM 20.1.4, Failure to Deposit Penalty.

21.7.3.4.8.1  (10-01-2008)
Claims Involving Indian Tribal Governments

  1. Under current law, Federally recognized Indian tribal governments (ITG) and their subdivisions, subsidiaries, and wholly-owned business enterprises are exempt from FUTA and can elect to participate in a state unemployment fund (SUTA), or in a reimbursement program. The SUTA exemption is an entity-by-entity election. If an election is made, the entity is exempt from FUTA only if it is a full participant in SUTA or in a reimbursement option with the state, and all SUTA liabilities are fully paid. See Announcement 2001-16, 2001-I C.B.715.

  2. The law provides a transition rule that may eliminate an Indian tribal government's obligation to pay FUTA taxes for certain services performed during 2000, but before December 21 of that year. Under the rule, there was no FUTA tax liability for services performed by its employees if certain conditions were met.

  3. In the rare instance a 2000 Form 940 involving Indian Tribal Government is received and the statute is open and an adjustment is required, see the archived copies of this IRM on SERP.

21.7.3.4.8.1.1  (01-01-2005)
Indian Tribal Governments Protective Claims

  1. Indian tribal governments may file protective claims involving exemption for FUTA for years prior to 2000.

  2. Currently, there is no provision to allow claims for years prior to 2000. If a protective claim is received, it must be routed as CAT-A. The same procedures apply to these protective claims as for other protective claims, as described in IRM 21.5.3.4.7.3, Protective Claims.

21.7.3.4.8.2  (01-01-2005)
Railroad Retirement Board (RRB) Determinations

  1. If an amended Form 940 mentions RRB determinations, see IRM 21.7.2.6.5.8, RRB Employer Status Determinations.

21.7.3.4.9  (05-27-2009)
Form 3465 Adjustments from Entity (FUTA)

  1. Entity verifies whether taxpayer is subject to FUTA tax and forwards Form 3465, Adjustment Request, to Accounts Management for processing. See IRM 21.7.11.4.2(6), CP172/192– Form 3465, Request for Adjustment, for processing procedures.

21.7.3.4.10  (11-25-2013)
Credit Reduction States

  1. Employers that pay their state unemployment tax timely and in full receive a 5.4% credit against their Federal tax. However, the credit is reduced when a state has taken loans from the federal government to meet its state unemployment benefits liabilities and has not repaid these loans within the allowable time frame. The reduction is 0.3% for the first year and an additional 0.3% for each succeeding year until the loan is repaid. A state that has not repaid money it has borrowed from the federal government is called a credit reduction state.

  2. Information concerning whether a state is considered a credit reduction state or remains a credit reduction state is never known until November of each year. Any information concerning which states and the amount of credit reduction applicable is updated on SERP every year prior to the filing of Form 940. The following table has been updated to include the applicable credit reduction percentages for 2013.

    State/Jurisdiction Abrv 2009 2010 2011 2012 2013
    Arkansas AR     .003 .006 .009
    Arizona AZ       .003  
    California CA     .003 .006 .009
    Connecticut CT     .003 .006 .009
    Delaware DE       .003 .006
    Florida FL     .003 .006  
    Georgia GA     .003 .006 .009
    Illinois IL     .003    
    Indiana IN   .003 .006 .009 .012
    Kentucky KY     .003 .006 .009
    Michigan MI .003 .006 .009    
    Minnesota MN     .003    
    Missouri MO     .003 .006 .009
    Nevada NV     .003 .006  
    New Jersey NJ     .003 .006  
    New York NY     .003 .006 .009
    North Carolina NC     .003 .006 .009
    Ohio OH     .003 .006 .009
    Pennsylvania PA     .003    
    Rhode Island RI     .003 .006 .009
    South Carolina SC   .003      
    Vermont VT       .003  
    Virginia VA     .003    
    Virgin Islands VI     .003 .015 .012
    Wisconsin WI     .003 .006 .009

    Note:

    New York was a credit reduction state for 2004 and 2005. For additional information, see archived copies of IRM 21.7.3. There were no credit reduction states for 2006, 2007, and 2008.

  3. Any employer reporting wages paid in a credit reduction state/jurisdiction must use Schedule A, Form 940 to compute the tax.

    Note:

    If there are no credits for state unemployment tax, the credit reduction is not applicable and tax is computed at the maximum FUTA rate.

  4. If an adjustment is the result of a change to the total taxable wages (not credit for payments made to the State), the amount shown on the return for credit reduction must also be adjusted, using the appropriate credit reduction factor for the applicable State and year.

    1. The reduced credit increases the federal tax liability.

    2. The credit reduction portion of tax is not required to be deposited until the due date of the Form 940. See IRM 20.1.4.9, Form 940 Series, for more information. If questioned by the taxpayer, instruct them to report the additional credit reduction amount with the fourth quarter's liability.

21.7.3.4.11  (01-01-2005)
State Certified Wages Less Than Federal Taxable Wages

  1. When state certified wages are less than federal taxable wages reported on Form 940 and the net tax discrepancy is ≡ ≡ ≡ ≡ ≡ ≡

    1. Calculate the gross federal tax on the federal wages.

    2. Calculate the allowable state credit on the state wages.

21.7.3.4.12  (01-01-2005)
IRC 127 Claims (FUTA)

  1. A minimal number of claims may be received as a result of the permanent extension of IRC 127. Claims can be allowed without requesting recertification. See IRM 21.7.2.5.9, IRC 127, Educational Exclusions, for more information.

21.7.3.4.13  (10-01-2012)
Schedule H FUTA Erroneously Reported

  1. Some taxpayers erroneously report FUTA tax on both Schedule H, Form 1040, Form 1041, and on Form 940. Others report the tax on Form 940 instead of Schedule H.

  2. Use the table below to adjust these accounts.

    If Then
    Tax was reported on both Schedule H (MFT 30/05) and Form 940 (MFT 10) 1. Delete portion of FUTA tax from MFT 10.
    2. Transfer any payments intended for Schedule H FUTA tax from MFT 10 to MFT 30/05. (See Note below table.)
    3. Inform taxpayer of corrections made.
    4. Delete filing requirements if appropriate.
    Tax was reported on Form 940 only 1. Leave the assessment on MFT 10.
    2. If payments on MFT 30 were intended for FUTA assessment, transfer to MFT 10. (See Note below table.)
    3. Abate applicable penalties and interest if necessary payment(s) was received by ≡ ≡ ≡ ≡ ≡ of the following year.
    4. If payment(s) was not received by ≡ ≡ ≡ ≡ ≡ ≡ manually adjust penalties and interest based on the correct due date of April 15.
    Tax was reported on Schedule H (MFT 30/05) only 1. Leave assessment on MFT 30/05.
    2. If payments on MFT 10 are intended for Schedule H, transfer to MFT 30/05. (See Note below table.)
    3. Delete filing requirements on MFT 10, if appropriate.
    Tax was erroneously reported on both Form 940 and Form 941 or Form 944 See IRM 21.6.4.4.8.12, BMF Form 941, Employer's Quarterly Federal Tax Return, Filed Instead of IMF Schedule H, Household Employment Taxes.

    Note:

    If unable to ascertain which payments on MFT 10 or 30/05 were intended for account where assessment is being made, contact taxpayer (preferably by telephone) to determine which payments need to be transferred.

21.7.3.4.14  (10-01-2014)
FUTA Electronic Filing

  1. Information regarding Form 940 electronic filing options are provided in Pub 3823, Employment Tax e-file System Implementation and User Guide and IRM 3.42.4, IRS e-file for Business Tax Returns.

  2. All efiled Forms 940 can be recognized on TXMOD by their unique Filing Location Codes (FLC)/Document Codes (Doc Codes). See IRM 3.42.4.4.2.1, Researching e-file BMF Identification Codes, for more information

  3. IRM 3.42.4.14, Handling e-file Inquiries contains a list of contacts and telephone numbers which can be provided to callers who need assistance with electronic filing issues.


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