Persons Employed in a U.S. Possession/Territory - FUTA
U.S. territories are islands under the jurisdiction of the United States which are not States of the United States. U.S. territories can be divided into two groups:
- Those that have their own governments and their own tax systems (Puerto Rico, U.S. Virgin Islands, Guam, American Samoa, and The Commonwealth of the Northern Mariana Islands), and
- Those that do not have their own governments and their own tax systems (Midway Island, Wake Island, Palmyra Island, Howland Island, Johnston Island, Baker Island, Kingman Reef, Jarvis Island, and other U.S. islands, cays, and reefs that are not part of any of the fifty states).
Employers pay Federal Unemployment Tax and file Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Only employers pay this tax. It is not deducted from the employee's wages. For more information, refer to the instruction for Form 940, and to Publication 15 Circular E, Employer’s Tax Guide.
Among the employers listed in all the territories in both paragraphs 1 and 2 above, only those employers who pay wages to U.S. citizens, resident aliens, and nonresident aliens employed in Puerto Rico or the U.S. Virgin Islands are subject to U.S. FUTA tax under the same conditions that would apply to U.S. citizens employed in the United States. However, certain types of services are exempt from FUTA taxes.
Certain Compensation Exempt From FUTA Taxes
- Compensation paid to agricultural workers, including foreign agricultural workers in H-2A nonimmigrant status;
- Compensation paid to household employees, including au pairs who are resident aliens in J-1 nonimmigrant status, unless the compensation exceeds $1,000 during any calendar quarter of the current year or prior year;
- Compensation paid to employees of religious, charitable, educational, or certain other tax-exempt organizations;
- Compensation paid to nonresident aliens temporarily present in the United States or its territories in F-1, J-1, M-1, Q-1, or Q-2 nonimmigrant status, including:
- Nonresident alien students in F-1, J-1, M-1, or Q-1 nonimmigrant status
- Nonresident alien teachers and researchers in J-1 or Q-1 nonimmigrant status
- All other Nonresident alien Exchange Visitors and Cultural Exchange Visitors in J-1, Q-1, or Q-2 nonimmigrant status.
Caution! Wages paid to aliens in F-1, J-1, M-1, Q-1, or Q-2 nonimmigrant status who have become resident aliens for tax purposes are subject to FUTA tax under the same conditions that would apply to U.S. Citizens.
For a list of other exempt services, refer to Publication 15 Circular E, Employer’s Tax Guide.
- Federal Unemployment Tax
- Form 940 and Instruction
- Internal Revenue Code Section 3306
- Income Tax Regulation 31.3301-1 et seq.
- Publication 15 Circular E, Employer’s Tax Guide
- Publication 51, Circular A, Agricultural Workers Tax Guide
- Publication 80, Circular SS, Federal Tax Guide for Employers in the U.S. Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands
- Publication 179, Federal Tax Guide for Employers in Puerto Rico (Published in Spanish only as Circular PR - Guia Contributiva Federal Para Patronos Puertorriquenos)
- Publication 926, Household Employer's Tax Guide
Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.