IRS Form 940 is used by employers to report and pay Federal Unemployment Tax Act (FUTA) taxes. This tax helps fund state unemployment agencies and benefits workers who lose jobs through no fault of their own. The form must be filed annually by most employers and includes wage and tax data that helps the IRS verify proper compliance. Reliable payroll processing services ensure accurate and timely filing of Form 940, helping businesses stay compliant with federal regulations and avoid penalties.
Key Facts About Form 940
- It reports annual FUTA tax liability
- Employers file it, not employees
- FUTA applies to the first $7,000 of each employee’s wages
- Most employers qualify for a tax credit of up to 5.4%
- Form 940 is due by January 31 for the prior tax year
What Is FUTA Tax?
FUTA tax is a federal tax paid by employers to support unemployment insurance programs. The standard FUTA tax rate is 6.0%, applied only to the first $7,000 of wages per employee per year. However, if the employer pays state unemployment tax on time, they may receive a credit of up to 5.4%, reducing the effective FUTA rate to 0.6%.
Who Needs to File Form 940?
You must file Form 940 if you meet either of these:
- Paid $1,500 or more in wages in any quarter during the current or previous year
- Had one or more employees for at least 20 different weeks in the current or previous year
Special rules apply for household, agricultural, and nonprofit employers
When Is Form 940 Due?
- Deadline: January 31
- If you’ve paid all FUTA taxes on time, you get a grace period until February 10
- FUTA tax deposits must be made quarterly if the total FUTA liability exceeds $500
Quarterly FUTA Deposit Schedule
| Quarter | Dates Covered | Deposit Due |
| Q1 | Jan 1 – Mar 31 | April 30 |
| Q2 | Apr 1 – Jun 30 | July 31 |
| Q3 | Jul 1 – Sep 30 | October 31 |
| Q14 | Oct 1 – Dec 31 | January 31 |
What Are Credit Reduction States?
If a state has borrowed from the federal government to pay unemployment benefits and hasn’t repaid on time, employers in that state face a credit reduction, meaning they owe a higher FUTA rate. The IRS publishes an annual list of these states.
How to File Form 940
You can file either:
- Electronically: Using IRS-authorized e-file software or a tax professional
- By Mail: Addresses vary based on your location and whether you’re sending a payment
What You Need to Complete the Form
- Employer Identification Number (EIN)
- State unemployment tax info
- Total employee wages and FUTA taxable wages
- FUTA payments made during the year
- Knowledge of whether you operate in a credit reduction state
How to Complete Form 940
Let’s walk through each section and line of Form 940 so you can confidently complete it yourself.
Top of Form 940 – Basic Info
- Employer Name and Address: Exactly as registered with the IRS
- EIN: Employer Identification Number (do not use SSN)
- Trade Name (if applicable)
- Address: No PO Boxes allowed for business returns
Part 1: State Information
- Line 1a: Check if you paid state unemployment tax to only one state, and select that state
- Line 1b: Check if you paid wages in more than one state
- Line 2: If any state is a credit reduction state, check “yes” and complete Schedule A
Part 2: Wages and FUTA Tax Calculation
- Line 3: Total payments to all employees (gross wages paid, before taxes)
- Line 4: Payments exempt from FUTA tax (e.g., fringe benefits, group life insurance, etc.)
- Line 5: Subtract Line 4 from Line 3 = Taxable FUTA wages
- Line 6: Multiply Line 5 by 0.006 (if eligible for full credit) = FUTA tax before adjustments
Part 3: Adjustments
- Line 7: Adjustment for state unemployment taxes if you didn’t qualify for full credit
- Line 8: Additional tax due if you paid wages in credit reduction states
- Line 9: Total FUTA tax liability = Line 6 + Line 7 + Line 8
Part 4: FUTA Payments Made
- Line 10: FUTA tax deposited for the year
- Line 11: Balance due if Line 9 is more than Line 10
- Line 12: Overpayment if Line 10 is more than Line 9—select refund or apply to next year
Part 5: FUTA Liability by Quarter
Only complete this if your total FUTA liability exceeds $500.
- Line 13a–d: Report tax liability per quarter
- Line 13e: Total of quarterly liabilities (must equal Line 9)
Part 6: Third-Party Designee
- Check “Yes” if you authorize someone (like your accountant) to talk to the IRS on your behalf
Part 7: Signature Section
- Must be signed by the business owner or authorized officer
- Include printed name, title, phone number, and date
What Happens If You File Late?
Penalties for late filing or payment include:
- 5% per month late filing penalty (up to 25%)
- 0.5% per month late payment penalty
- Interest on the unpaid amount, compounded daily
Even if no FUTA tax is owed, you must file if you’re required to.
IRS Form 940 vs. Form 941
| Form 940 | Form 941 |
| Annual FUTA return | Quarterly payroll tax return |
| Employer-paid only | Includes employee withholding |
| Filed once per year | Filed four times per year |
Both may be required depending on your business.
Need Help With Form 940? Mayatax Is Here for You
Filling Form 940 can be simple with the right guidance, but mistakes can lead to penalties, missed credits, or audits. If you’re unsure how to calculate your FUTA liability, handle credit reduction states, or reconcile your quarterly deposits, mayatax can help.
Contact The Madtax today to stay compliant and save time on payroll tax filing. Let the experts take care of your taxes so you can focus on running your business.