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Relation between State unemployment (SUI) and FUTA payments

Learn how your State Unemployment Insurance (SUI) taxes are related to your FUTA payments and Form 940 filing.

You may be wondering how your SUI payments relate to your FUTA taxes. We'll tell you. And we'll also tell you how to qualify for the reduced FUTA rate.

How SUI payments affect FUTA taxes

Any payments you make for SUI affect whether you qualify for a reduced rate on your Federal Unemployment Taxes (FUTA). Most employers must file a 940 form and pay FUTA at year-end. And most qualify for the reduced FUTA rate.

During the year, you pay an estimated amount for FUTA. Actual amounts for FUTA are calculated at the end of the year based on either a 6.0% or a .6% rate. This depends on whether your company qualifies for the discount. Actual FUTA calculations can only be made once you create the 940 form.

Qualify for a reduced FUTA rate

Several factors affect whether you qualify for the reduced rate:

  • You're not located in a credit reduction state
  • You pay all your SUI taxes in a timely manner
  • Your business is a 501(c)(3) or non-profit business

When you create your 940 form, we evaluate any SUI payments you've made throughout the year. This is to determine whether you qualify for the discounted FUTA rate. As a result, the FUTA amount stated on your 940 form may differ from what you expect.

We can only determine whether you qualified for the discounted rate if your SUI payments have been entered or filed correctly in our system. You can't create or file a 940 form until all SUI payments have been entered.

For more information about 940 forms and FUTA, see the IRS Instructions for Form 940.

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