IRS Releases Draft Version of 2011 Form 940A

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IRS Releases Draft Version of 2011 Form 940A

The IRS has issued a draft version of 2011 Form 940, Schedule A, Multi-State Employer and Credit Reduction Information. Under Title XII of the Social Security Act, states with financial difficulties can borrow funds from the federal government to pay unemployment benefits. If a state defaults on its repayment of the loan, the amount of state unemployment tax credits that employers in the state may claim on Form 940 is reduced (i.e., the state is a “credit reduction” state). Employers in credit reduction states pay federal unemployment tax (FUTA) at a 0.3% rate higher than other employers, beginning with the second consecutive January 1 in which the loan isn’t repaid. This calculation is made on Form 940, Schedule A. As of Sept. 29, 2011, 27 states and the Virgin Islands have borrowed money from the federal government to help keep their unemployment insurance (UI) trust funds solvent. Many of these states have had outstanding loans with the federal government for two consecutive years. If these loans are not repaid by Nov. 10, 2011, the FUTA tax rate for employers in these states will increase by 0.3%.

Form changes. The format in the draft version of 2011 Schedule A is significantly different than the format on the 2010 Schedule A. The 2010 Schedule A only lists the three states that were subject to credit reduction. The 2011 draft version of Schedule A lists all 50 states, plus the District of Columbia, Puerto Rico, and the Virgin Islands. Employers will need to place an “X” in the box of every state in which they were required to pay state unemployment tax in 2011 even if the state is not a credit reduction state. The IRS indicated on the October payroll industry conference call that it decided to list all of the states on the draft version of 2011 Schedule A, because so many more states could possibly be subject to credit reduction than in previous years.

Employers may not file the draft version of Schedule A. Employers in credit reduction states do not have to make a federal unemployment tax deposit for the 0.3% reduction in their FUTA rate until the fourth quarter deposit due on Jan. 31, 2012. The IRS will finalize 2011 Schedule A sometime after Nov. 10, 2011.

The draft version of 2011 Form 940, Schedule A Multi-State Employer and Credit Reduction Information can be viewed athttp://www.irs.gov/pub/irs-dft/f940sa--dft.pdf.