FUTA Tax Responsibility Regarding Persons Employed in a U.S. Possession/Territory

June 21, 2019
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As an employer, you’re tasked with an array of recordkeeping duties from the government. You’re also responsible for paying federal and state unemployment taxes in most situations. The Federal Employment Tax Act (FUTA) requires that American employers pay a certain rate, usually 6 percent depending on the state, on the first $7,000 paid to each employee.

FUTA and U.S. Possessions

So, the question arises of whether to pay FUTA taxes for employees residing in a U.S. possession, commonly referred to as a U.S. territory. There are two types of U.S. territories: those with their own governments and tax systems and those without. Puerto Rico and the U.S. Virgin Islands fall under the first category, so employees in these two territories must be represented when calculating FUTA taxes, according to the Internal Revenue Service.

These federal unemployment taxes must be filed annually using Form 940 and paid quarterly if the employer’s payroll liability exceeds $500 in that quarter. When filing, employers will need their Employer Identification Number and detailed information on employee payments.

Employers are exempt from FUTA taxes if they pay:

  • Wages to agricultural workers
  • Wages to household employees (unless the compensation to a resident alien exceeds a certain dollar amount during any calendar quarter of the current year or prior year)
  • Wages to employees of tax-exempt organizations
  • Wages to nonresident aliens temporarily present in the U.S. in F-1, J-1, M-1, Q-1 or Q-2 nonimmigrant status

The IRS states that wages paid to aliens in F-1, J-1, M-1, Q-1 or Q-2 nonimmigrant status are subject to standard FUTA taxes if they have become resident aliens for tax purposes. As you navigate payroll taxes for your company, be sure to contact our professional accountants to help you chart a course to success.

Other FUTA Special Circumstances

Work with the Experts

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.