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Add FUTA Only Adjustment

Nina Tchistiakova Updated by Nina Tchistiakova

A FUTA adjustment is necessary when an employee is subject to FUTA tax for only part of the year. This is because Employer Paid taxes, such as FUTA, are not deducted from the employee's paycheck so the amount of the tax is not saved with each paycheck. Instead, the tax is calculated when a report is run or a form is completed.

The Add FUTA Only Adjustment option is designed for when the employee is not subject to FUTA at the beginning of the year but later becomes subject to FUTA. A typical situation is a 20 year-old child working for the parent's business. The child is not subject to FUTA until age 21. When the child turns 21, the user must mark the employee as subject to FUTA. But reports and data imported into Form 940 will think that the prior income was subject to FUTA also. To correct for this, the user must create an Income Item that is subject to only FUTA tax and will not appear as part of the net paycheck. For the income the employee received prior to being subject to FUTA, a negative adjustment must be entered in this item on the paycheck grid. This utility menu item will set up the FUTA adjustment income item and create an adjustment entry.


  1. Click the Add FUTA Only Adjustment item on the Payroll Grid Options menu.
  2. Click OK to proceed. The program will try to identify an Income Item already set up for this employer with the proper tax settings and Do Not Include in Net Pay setting. If it finds an existing item, the user is asked to confirm the choice. Click YES if the displayed Income Item is correct and go to step 4.
  3. If the employer doesn't already have an Income Item with the proper settings, then the program will create one and display the settings in the Income Item Setup screen.
    Note that only FUTA tax is checked. If the employee was not subject to state UI before and now is subject, then see the Add State UI Adjustment option.
    Click OK when finished and answer YES to mark existing employees as subject (if prompted) and the Income Item (FUTA Adj) is added to the employer's setup and appears in the grid.
  4. If the cursor was on a check when the menu item was clicked, then the user is asked if they want to adjust only the current check. Typically they would answer NO because they want to adjust several checks. If you only want to add a FUTA adjustment to the current check then answer YES and a negative adjustment equal to the amount of subject FUTA wages is placed in the adjustment field. You are done.
  5. If you want to adjust all the paychecks before the employee became subject to FUTA (most common), then answer NO to the question and enter the date the employee became subject. All checks prior to that date will have negative adjustments equal to the amount of subject FUTA wages. This procedure should only have to be done once since all necessary adjustments have been made. Future paychecks are subject to FUTA and don't need an adjustment. Be sure that the employee FUTA setting has been changed.

If the user needs to adjust the FUTA wages for some other purpose than that described above, this procedure can be used to add the FUTA Adj. income item and the user can make any manual amount entries required for their situation.

See also Add State UI Adjustment.

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Add State UI Adjustment