940 tax exemption

[imjulier]

I have a client who has already filed their own 940 tax return. They are an s-corp, no employees but the husband & wife SH, opted out of paying state unemployment in WA. I'm in CO and you can't do that here but he claims that you can in WA. 940 filed says all wages they paid are exempt. I just read the instructions for 940 and don't see how this could be the case. I think they'd have to pay at the higher rate since no state unemployment payments were made. Which is right, exempt from FUTA or liable for FUTA at the higher rate?

Thanks for any input.

Julie

[ILLMAS]

If there were zero wages for the year and they checked off exempt, I don't see it as a problem, the IRS would know they are not exempt unless they meet any of following:

Like other employers, exempt organizations that compensate workers are generally subject to employment taxes when the compensate workers. The following exceptions may apply, however:

Exemption from FUTA (unemployment) tax for section 501©(3) organizations

An elective exemption from FICA (Social Security and Medicare) for churches and certain church-controlled organizations

Exemption of payments for certain services performed by ministers or members of religious orders from FICA and FUTA taxes

Exclusion from FICA of compensation paid to students

[Karen Lee]

You are right Julie. Corp officers are no longer automatically exempt from Unemployment and have to "opt out" and are NOT exempt from state unemployment.

Corp Officers are not exempt from 940. If they did not pay any unemployment on their wages then no credit and pay 6.2% on first $7000.00

What I do is figure what the unemployment rate is for the year and what the wages for corp officer may be for the year and determine if the officer should opt out or stay in to get the 940 credit.

Opt out has to be mailed by 1/15 to Employment Security Dept. Let me know if you need to get the form and I will give the web address.

Karen

[imjulier]

Thanks MAS and Karen-

They were paid wages....49,000 in total. Karen, is the opt-out due by 1/15 for 2010....so 2009 opt-out was filed in January of 2009? Also, based on what you are describing, if no state unemployment was paid in 2009, full 940 taxes would still be due (the 6.2%)? They moved to CO mid-year which is why I have no idea what they did in WA. Thanks for your help.

Julie

[Karen Lee]

Exempting corp officers for 2009 should have been done by 1/15/09 and there is no telling if that was actually done or not so it is an assumption. If they didn't pay any unempolyment in 2009 then they would have to pay the full rate on 940.

You are right on all counts.

2010 needs to be filed by 1/15/10 however no need to file another exemption for corp officer if one actually was filed in 2009.

There is an exception for the filing if they had no employees and corp officers were the only employees however it doesn't effect the 940 rules for the credit.

Karen

[carolynm]

How do corp officers file for the exemption?

Does filing this exemption mean they don't have to pay FUTA taxes on their wages?

[Karen Lee]

I am talking about the Washington State Employment Tax exemption for corporate officers. I don't know of an exemption for corporate officers for 940.

If Washington State employment tax rates are low enough for corporate officers to get the credit for 940, then it may be less expensive to pay the State unemployment to get the credit for 940.

The difference from $434.00 for 940 and $56.00 for 940. If you can pay less than the difference for State unemployment and receive the full credit then do not opt out of Washington State employment taxes for corporate officers.

I haven't had to deal with exempt 940 wages for years so I don't remember what wages are exempt without getting out Pub 15.

Karen