What is Form 940?
The IRS Form 940 is an annual federal unemployment tax filing return used by businesses with one or more employees. We’ll dive into how Form 940 works and when you need to file it to help you stay on top of any required paperwork.
Key takeaways
- Form 940 reports taxes paid under the Federal Unemployment Tax Act (FUTA).
- You need to file it if you paid at least $1,500 in wages to employees during any quarter of the calendar year.
- The deadline for Form 940 is January 31 of the following year.
What is Form 940?
Form 940 is the form businesses use to report taxes paid under the Federal Unemployment Tax Act (FUTA). FUTA taxes and state unemployment systems help cover unemployment tax benefits for workers who’ve lost their jobs.
Unlike FICA taxes, which are split 50/50 between employees and businesses, the employer pays 100% of FUTA taxes.
2024 FUTA tax information
The FUTA tax applies to the first $7,000 in taxable wages paid to each employee during a calendar year, including wages and salaries, commissions, bonuses, sick pay, vacation time, and contributions to retirement plans.The FUTA tax rate is 6%; however, businesses that pay wages subject to state unemployment taxes may be eligible for a reduced rate.
Who needs to file a Form 940?
The IRS requires your business to file this form if:
- You paid at least $1,500 in wages to employees during any quarter of the calendar year.
- You had one or more full-time, part-time or temporary employees working at any point during 20 or more different weeks throughout the year.
You file Form 940 annually, but you might have to pay FUTA taxes quarterly if the amount you owe for the quarter is more than $500. In that case, you use Form 940 to reconcile your quarterly tax payments to the amount of FUTA taxes owed for the year.
You don’t have to make quarterly deposits if your FUTA tax liability is less than $500 for the year. Instead, you pay the amount due when you file Form 940 at year-end.
Form 940 example
Say you have one part-time employee who earns $2,000 per month. At the end of the first quarter (March 31), you calculate your FUTA tax as follows:
0.06 x $6,000 = $360 The FUTA tax rate times the total amount the employee was paid over the 3 months in the quarter
Since your first quarter FUTA tax liability is less than $500, you don’t need to make a deposit.
At the end of the second quarter, your cumulative FUTA tax due is $720. That’s $360 from the first quarter plus $360 due for the second quarter.
Since your cumulative FUTA tax owed is over $500, you need to make a deposit by the last day of the month after the end of the quarter using the Electronic Federal Tax Payment System (EFTPS).
Credits for state unemployment tax
In addition to filing Form 940 for federal unemployment taxes, employers may have to pay state unemployment taxes. Depending on the state, businesses may have to file multiple forms or reports and make quarterly contributions to their state’s unemployment insurance fund. The amount of taxes owed varies by state, but is generally based on the wages paid during a given quarter and the state’s unique rate system.
State wage bases and tax rates may change each year. However, states usually assign rates to specific businesses based on the turnover rate of the industry, how long the company has been in business and the number of former employees who file for state unemployment benefits. Businesses with high employee turnover may be assigned higher tax rates.
Fortunately, companies that pay wages subject to state unemployment taxes may be eligible for a credit of up to 5.4% of their FUTA taxable wages, making their FUTA tax rate after the credit as low as 0.6%.
Who doesn’t need to file a Form 940?
There are some industry-specific rules for certain types of employers, which we’ve outlined in the table below.
| Employer industry | Do I need to file a Form 940? |
|---|---|
| Household employees | Only if you paid total wages of $1,000 or more to household employees during any calendar quarter. |
| Agriculture | Only if:
|
| Tribal governments | No, as long as you are fully compliant with applicable State Unemployment Insurance requirements. |
| State and local governments | No. |
| Tax-exempt nonprofits | No. Organizations that are exempt from income tax under section 501(c)(3) of the Internal Revenue Code are also exempt from FUTA. |
How to fill out Form 940
At the end of each quarter, you must calculate the FUTA tax you owe. If the cumulative amount is greater than $500, then you need to make a payment. If it’s less than $500, you can carry the amount into the next quarter.
The fiscal quarters throughout the year are broken down as follows:
- Quarter 1: January through March
- Quarter 2: April through June
- Quarter 3: July through September
- Quarter 4: October through December
To fill out Form 940, you need to:
- Provide basic business information, including your employer identification number (EIN), business name and address.
- Calculate the FUTA tax owed for the year based on wages paid to employees.
- Calculate any adjustments for state unemployment taxes paid and any FUTA tax deposits made during the year.
- Subtract your adjustments from your tax owed based on wages to calculate your total FUTA tax owed.
- Determine whether you’ll need to make quarterly deposits. If you owe more than $500, this will be required.
- Optional: Fill out information for any designee you’d like to add. This allows the IRS to communicate with someone other than you, like your tax preparer, about the form.
- Sign and date the bottom of the form before submitting it.
You can file Form 940 electronically using IRS-approved software or work with a tax professional who can file the form for you. Make sure to keep a copy of your submission for your records.
How is Form 940 different from Form 941 and Form 944?
Form 940, Form 941 and Form 944 are all used by employers to report federal employment taxes, but they serve different purposes.
| What it is | Who needs to file | |
|---|---|---|
| Form 940 | A form filed annually to report FUTA taxes | Employers who paid wages of $1,500 or more in any calendar quarter during the year or had one or more employees for some part of a day in 20 or more weeks of the year |
| Form 941 | A form filed quarterly to report federal income and FICA taxes — Social Security and Medicare taxes — withheld from employee wages | Employers that withhold federal income taxes, Social Security and Medicare taxes from employee wages |
| Form 944 | A form filed annually to report Social Security, Medicare, and withheld federal income taxes | Small employers with an annual employer tax liability of $1,000 or less |
Frequently asked questions
The IRS encourages taxpayers to file Form 940 electronically, either by using an approved IRS e-file provider or through your tax professional or payroll service.
However, if you need to file a paper return, the mailing address depends on your state and whether you’re filing Form 940 with or without a payment. You can find mailing addresses in the IRS Instructions for Form 940.
The due date for Form 940 is Jan. 31 to report the federal unemployment taxes you owe for the prior year. However, you may have to make payments each quarter throughout the year.
At the end of each quarter, you must calculate the FUTA tax you owe. If the cumulative amount is greater than $500, then you need to make a payment. If it’s less than $500, you can carry the amount into the next quarter. At the end of the year, you submit Form 940 and pay any FUTA tax owed for the fourth quarter, plus any unpaid tax from earlier quarters.
If you deposited all FUTA tax when due, you have until Feb. 10 to file Form 940.
When depositing FUTA taxes through the Electronic Federal Tax Payment System (EFTPS), be sure to schedule your payment before 8:00 p.m. ET one calendar day prior to the due date. That way, you’ll leave time for the deposit to go through without being late.
If EFTPS is down when you need to make a payment, you’re still responsible for paying on time. You can make EFTPS payments by phone 24 hours a day, seven days a week, by calling 1-800-555-3453.
If you paid wages to employees in more than one state or paid wages in a state that allows a credit to your FUTA tax rate, you need to file Schedule A (Form 940) along with your Form 940. This form helps you calculate your credit amount.