How to Fill Out IRS Form 940: Employer’s Annual Federal Unemployment (FUTA) Tax Return

Updated on February 6, 2024

At a Glance

  • Form 940 is an annual tax return filed by employers to report and pay Federal Unemployment Tax Act (FUTA) tax.
  • The FUTA tax applies to the first $7,000 paid to each employee annually, and the form is due every January 31st.
  • Employers are required to file the form if they paid $1,500 or more to employees in any quarter, or had one or more employees for at least 20 different weeks.
  • Failure to file by the due date results in penalties and interest charges.

Form 940 is an annual tax return filed by employers to report and pay Federal Unemployment Tax Act (FUTA) tax. FUTA together with state unemployment systems fund payments for unemployed workers. This guide covers who has to file Form 940, when it’s due, and how to accurately complete each line.

Overview of Form 940 FUTA Tax Return

The FUTA tax applies to the first $7,000 paid to each employee annually. The current FUTA tax rate is 6%, but eligible employers can take a maximum credit of 5.4% for timely state unemployment tax payments. So, the net tax rate works out to 0.6%. Form 940 is due every January 31st for reporting FUTA taxes for the prior calendar year on employee wages.

Who Has to File Form 940?

You must file Form 940 if either of these applied in the past year:

  • You paid $1,500 or more to employees in any quarter
  • You had one or more employees for at least 20 different weeks

There are exceptions for agricultural employers, households with domestic employees, some nonprofits, and government entities. See the official IRS instructions for more details.

Steps to Complete Form 940 Sections

Part 1: Business Information

Fill in the employer’s name, address, EIN, and type of Form 940 being filed.

Part 2: Determine Tax Before Adjustments

Enter totals here for taxable employee wages paid, any exempt amounts, limit reached per employee, and calculation of tax due.

Part 3: Determine Adjustments

Report adjustments for exempt wages, computation of allowable credits, and credits for timely state tax payments.

Part 4: Determine Tax & Balance Due/Overpayment

Total final tax due, make adjustments for previous deposits, and identify any balance due amount or overpayment for a refund.

Part 5: Report Quarterly Tax Liability

Breakdown of calculated FUTA amount owed per each quarter of the year.

Parts 6-7: Third Party Designee, Signature

Option to authorize a third party to discuss the return and required signature with contact phone number.

Filing Form 940 By Due Date

The IRS must receive Form 940 by January 31st, unless deposits were timely made allowing for a February 12th deadline. Failure to file by the due date results in penalties and interest charges.

The form must be mailed to the correct IRS processing address based on the business location. See the IRS website for current filing addresses.

Paying FUTA Taxes

The full amount owed for the year is due by January 31st. If above $500 for the year, you must make quarterly deposits during the prior year. Businesses enrolled in EFTPS can pay electronically.

Final Thoughts

Filing Form 940 is a critical obligation for employers to comply with federal unemployment tax requirements. Understanding the nuances of the form, such as eligibility, deductions, and payment instructions, is essential for accurate submission. Remember to review the IRS’s current instructions and updates to ensure compliance and avoid any potential penalties. Properly filing Form 940 reflects an employer’s commitment to supporting the federal-state unemployment insurance structure and their employees’ welfare.

Frequently Asked Questions (FAQ)

What is IRS Form 940?

IRS Form 940 is an annual tax return filed by employers to report and pay Federal Unemployment Tax Act (FUTA) tax. These funds, together with state unemployment systems, provide payments for unemployed workers.

Who needs to file Form 940?

You need to file Form 940 if you paid $1,500 or more to employees in any quarter or had one or more employees for at least 20 different weeks in the past year.

When is Form 940 due?

Form 940 is due every January 31st for reporting FUTA taxes for the prior calendar year on employee wages.

What is the current FUTA tax rate?

The current FUTA tax rate is 6%. However, eligible employers can take a maximum credit of 5.4% for timely state unemployment tax payments, which makes the net tax rate 0.6%.

How do I calculate the tax due?

The FUTA tax applies to the first $7,000 paid to each employee annually. You report adjustments for exempt wages, computation of allowable credits, and credits for timely state tax payments to calculate the tax due.

What happens if I don’t file Form 940 on time?

Failure to file Form 940 by the due date results in penalties and interest charges.

Where do I send my completed Form 940?

The form should be mailed to the correct IRS processing address based on the business location. You can find the current filing addresses on the IRS website.

How can I pay my FUTA taxes?

If the full amount owed for the year is above $500, you must make quarterly deposits during the prior year. Businesses enrolled in EFTPS can pay electronically.

What is the purpose of Form 940?

Filing Form 940 is a critical obligation for employers to comply with federal unemployment tax requirements. It supports the federal-state unemployment insurance structure and ensures employees’ welfare.

Where can I get more information about Form 940?

For more detailed information and updates, you can review the IRS’s current instructions and updates on their official website.

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Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.