FUTA Tax is being incorrectly calculated for corporate officer on form 940. How can I correct this?

Hi there, @Arianna09. Thanks for the detailed information about your concern.

To get this sorted out, let's start with checking your employee's profile, as the system will automatically accrue FUTA liability based on your setup.  

1. In the left menu, tap Payroll, then, go to the Employees tab.
2. Choose an employee, then click to open the profile.
3. Tap the Pencil icon next to Pay.
4. Click the Pencil icon under What are Employee's withholdings?.
5. In the tax Tax exemptions section, put a checkmark in the SUI box.
6. Hit Done.

Once done, when running the report, ensure that the dates filtered when pulling up the tax liability report for the employee and all employees are the same. 

To help check the payroll taxes calculated, you can run the Payroll Tax and Wage Summary report to verify the employee's wage.

Visit also below links to know more about how FUTA works:

• Payroll 101
• Federal Unemployment Tax Act (FUTA) Credit Reduction States
• Payroll tax wage bases and limits

If you have further questions about payroll, feel free to get back to me. I'd be more than happy to answer it for you. Have a nice day.

Thanks for your reply. However, this does not exactly help. The employees settings are correct. I can see the correct FUTA was calculated when I run the Payroll Tax and Wage Summary. It shows total is $694.97 for last year (2020). I paid $623.33 at the end of the 3rd quarter as QB instructed me to at the time.

The problem is when I view the 940 form it shows only $316.96 is due (this would be correct if this one employee was not exempt from SUI). It also shows I have only deposited $388.60, I believe it is showing this because QB auto adds a credit of $234.73 for 940. I have deleted this credit but then it automatically adds it again. 

Thanks for your reply. However, this does not exactly help. The employees settings are correct. I can see the correct FUTA was calculated when I run the Payroll Tax and Wage Summary. It shows total is $694.97 for last year (2020). I paid $623.33 at the end of the 3rd quarter as QB instructed me to at the time.

The problem is when I view the 940 form it shows only $316.96 is due (this would be correct if this one employee was not exempt from SUI). It also shows I have only deposited $388.60, I believe it is showing this because QB auto adds a credit of $234.73 for 940. I have deleted this credit but then it automatically adds it again.

Hello @Arianna09,

Since the taxes on your form is still incorrectly, I'd recommend contacting our Payroll Care Team. With their tools, one of our specialists can help you with the payroll correction. To do so:

1. Go to Help.
2. Select Contact Us.
3. Enter Incorrect Tax Amount in the What can we help you with? field.
4. Click Continue.
5. Choose a channel where you wish to connect with our dedicated support.

On top of that, I've got you this helpful article for guidance in preparation for the 2020 tax season: QuickBooks Online Payroll Year-end Checklist.

If there's anything else that I can help you with, please let me know by leaving any comments below. I'll be here to lend a hand.

I've contacted support and didn't get very far. The first four agents had no idea what to do. The last one I spoke with seemed to understand the problem, but after speaking with the backend she said "the system is designed somehow that for FUTA client's are eligible for the credit" so it's applying the lower rate to all employees, including the one that should have a higher rate. She said they are waiting for updates from operations and suggested I fill out the form manually outside of QuickBooks and had no idea when it would be corrected.

Thanks for the prompt reply, @Arianna09.

First and foremost, this is not the practice I want you to feel with our support. 

Second, I appreciate you for contacting our support and providing the detailed scenarios. I'm here to provide clarification about incorrectly FUTA in QuickBooks Online. 

I'd agree with the last person you've spoken to about the rate of employees. QuickBooks calculation complies with the IRS, which calculates the rates and tax eligibility as it is.

Please note that QuickBooks doesn't support amended or corrected forms. That's why they suggest downloading Form 940 and instructions from the IRS website. To amend said form, you must use Form 940 from the same year as the originally-filed return. For example, use the 2018 Form 940 to amend a return you originally filed for 2018.

To get the original copy, you can go to the Payroll Tax, then Annual Forms, and locate the said form. For more information, visit this article: File quarterly tax forms.

I've also added articles about how the FUTA calculated and different regulations. 

• (Circular E), Employer's Tax Guide 
• Payroll Tax Compliance Links

Keep me posted if there's anything else that I can assist you with. I'm always ready to help. 

Thanks for your reply. 

Does the 5.4% credit also apply to corporate officers that are exempt from SUI if all payments were made on time? If so, that may be where I'm confused. I expected FUTA to be much higher for this one employee ($420) but it seems to be calculating him at the same credit rate as the other employees. 

Yes, the state reduction credit will apply to corporate officer, Arianna09.

If the employee's profile is already exempt from both the SUI and corporate officer, your payroll needs some corrections. See the attached screenshot below for your visual guide.

I recommend contacting our QuickBooks Online Payroll Team so they can correct your payroll. Doing this will help ensure you have accurate amounts on the 940 form.

Here's how to get in touch with them:

1. Sign in to your QuickBooks Online company.
2. Go to Help (?).
3. Select Contact Us.
4. Enter your concern, then select Let's talk.
5. Choose a way to connect with us:
   • Start a chat with a support expert.
   • Get a callback from the next available expert.

You can also chat with them. Just select your product through these links:

Select your product and fill out the form to chat with an expert.

• QuickBooks Online Payroll
• QuickBooks Full Service Payroll
• QuickBooks Online Payroll Core
• QuickBooks Online Payroll Premium
• QuickBooks Online Payroll Elite.
  
  

Once corrected, you can start filing the payroll forms.

Stay in touch with me if you need anything else concerning payroll. I'll be around to help ensure you have accurate amounts reported on the payroll forms.

Can you tell me what allows him to get this credit? Everything I can find says he should be taxed at the maximum rate. I'm just trying to understand what allows him this credit. Throughout the year it calculated him at the higher rate and showed $420 for this one employee. Now it shows only $42, which is the same as the regular employees.

I have been working with QBO for a less than a year; at the same time, I have found too many glitches in this software. One of them relates to calculation of FUTA tax liability for corporate officers. I read thru this conversation and see that this issue has been for a long time and still not solved. My employer had relied on this software before my hiring and ended out by over-payment of $378 each year to IRS. I had worked with tech support for prolong time asking them to adjust annual FUTA tax liability for corporate officer to $42 vs. $420, because company has been paying WA state SUI for all other employees and is subject to credits for corporate officer. It had been the waste of my time trying to convince tech support to adjust it. I have not paid FUTA tax payment as QBO asked based on this mess and now work on filing Form 940 for 2022. Interesting fact is that QBO prepared correct Form 940 and did not require to remit extra $378 for corporate officer, even he is excluded from WA SUI. I guess, the calculations for this form were done according to IRS instructions and credits were applied accordingly. Nevertheless, QBO still shows tax liability to be remitted higher by $378. I cannot adjust it to pay different amount to pay electronically. I can log into EFTPS myself and pay thru their system proper amount; at the same time, it is practically impossible to adjust balances in QBO. QBO's restrictive design and mostly incompetent tech support put additional burden on the users. I am wondering, when QBO will start working on redesign software to make it more user friendly.

I popped in to see if this had been resolved and I can see that it hasn't. So glad that I have other options to manually compute this form CORRECTLY and still electronically submit the form, but more importantly, I don't have to waste my client's time trying to resolve this with QB "support" team. 

I'm glad I'm not the only one dealing with this. Very frustrating. You're saying corporate officers do still get the credit when paying SUI for their other employees? 

Everything I see says the corporate officer still has to pay the full rate for FUTA when exempt from WA SUI. 

https://esd.wa.gov/employer-taxes/corporate-officers  

If a corporation does not elect coverage for its corporate officers, it must pay the full rate for federal unemployment taxes (FUTA) on them. This may cost more than state taxes, depending on tax rate and salaries.

The "caviar" is in the instructions for Form 940. I am attaching it here. There is Worksheet-Line 10 to calculate credits for corporate officers on page 11 and examples of calculations on next page. It reduces FUTA tax liability for corporate officers who are exempt from SUI.

Thank you! After going through the worksheet it has me leave line 10 blank, so again, it does seem that QB filled the form out correctly, but had me overpay in the beginning of the year. I guess that's because they won't know that all SUI payments were made on time until the end of the year? 

It throws me off when I read from WA ESD that corporate officers are subject to the full FUTA rate when exempt from SUI, but according to this worksheet he gets the same rate as the other employees. 

Thanks again!

I was hoping that Intuit eventually start working on the fixing bugs in their software, that shows 940 tax liability to pay extra $378 for corporate officers, even the form 940 itself calculates tax liability amount correctly on tax return. The issue persists and I am wondering how much time and energy QBO users will continue to waste by talking to Intuit tech support explaining the issue with QuickBooks software (that directs to pay IRS $378 more for corporate officers FUTA tax ($420-$42)) again and again. Maybe, IRS should be looking closer to this issue as well, because it put more load on them as well to process refunds to the businesses, that were directed to overpay taxes by poor design of QuickBooks Online payroll software.

How do I set the exemptions up for an owner exempt from SUI on Desktop?  I don't have all the options you're listing I don't think.

I can help you set up the exemptions for an owner who's exempt from SUI in QuickBooks Desktop, michelle.

The steps provided above is applicable for QuickBooks Online Payroll. If you're using QuickBooks Desktop Payroll Basic, Standard, or Enhanced, you can exempt your business from SUI (State Unemployment Insurance) by following these steps:

1. Go to the List menu.
2. Click on Payroll Item List.
3. Double-click on your SUI payroll item. You don't need to enter an SUI account number. Keep selecting Continue until you reach the window with your SUI rate.
4. Enter your SUI rate as 0.00%. Click Continue and then Finish. If needed, double-click on your state tagalong or surcharge payroll item.
5. Enter your rate as 0.00%. Click Continue and then Finish.

That's it. If you want to exempt your employee from SUI, here's what you need to do.

1. Go to the Employees section.
2. Double-click on the first employee in the list.
3. Click on the Payroll Info tab and then select Taxes.
4. On the State tab, uncheck the SUI box. If your state has an SUI surcharge or tagalong, go to the Other tab, select your state's SUI surcharge or tagalong item, and then click Delete. Once you're done, click OK twice.

If you're using QuickBooks Desktop Payroll Assisted, please reach out to our Payroll Support Team for assistance with exempting your business and employees from SUI. You can check this article for more details: Set up federal and state unemployment insurance for churches and nonprofits.

If you have any further concerns or need assistance with QuickBooks Desktop payroll, please don't hesitate to let me know. I'm here to help and provide guidance throughout the process.