Form 940: How Employers Report Federal Unemployment Taxes
September 05, 2024
An in-depth examination of Form 940, including how to complete it, where to file it, when it’s due, and why it’s necessary.
- Reviewed by Paylocity's Compliance & Government Relations Team
What is Form 940?
Form 940, or the Employer’s Annual Federal Unemployment Tax Return, is a mandatory tax document employers use to report and remit their Federal Unemployment Tax Act (FUTA) taxes to the Internal Revenue Service (IRS).
What are FUTA Taxes?
FUTA taxes are employer-paid payroll taxes used by the federal government to fund programs and benefits for unemployed citizens.
In 2024, the FUTA tax rate is 6% of each employee’s wage base limit (i.e., the first $7,000 of their annual wages). Employers can, however, earn a credit reducing that rate to as low as 0.6% if they promptly and fully pay their state’s unemployment taxes and that state isn’t subject to a Department of Labor credit reduction.
Key Takeaways
- Employers annually submit a 940 form to report how much they owe in FUTA taxes.
- Form 940 can be submitted electronically or by mail but is due by January 31 every year.
- Employers can, if needed, submit an amended 940 form.
Form 940 vs 941: What’s the Difference?
Forms 940 and 941 are both IRS tax documents employers must file, but a 940 form is used to report unemployment taxes while Form 941 is used to report Medicare and Social Security (a.k.a., Federal Insurance Contributions Act (FICA)) taxes.
Furthermore, employers must file a 941 form every quarter unless they owe less than $1,000 in FICA taxes for the year. In such cases, the employer may use Form 944 instead.
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Unemployment Taxes (FUTA) |
Social Security/Medicare Taxes (FICA) |
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Filed Quarterly |
N/A |
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Filed Annually |
Why Complete a 940 Tax Document?
An employer should file a 940 form for several reasons besides it being a legal requirement.
- Fiscal responsibility: Accurately and promptly filing tax forms demonstrates responsible tax management, which helps maintain a good reputation and reduces the risk of audits.
- Potential tax credits: Employers can only take advantage of potential FUTA tax credits if they file a 940 form showing compliance with state unemployment taxes.
- Unemployment support: Filing a 940 tax document and paying FUTA taxes fund programs and services assisting workers who have lost their jobs.
Which Organizations are Required to File Form 940?
Any organization that owes FUTA taxes is legally required to file a 940 tax form. Generally speaking, an employer must pay FUTA tax if it:
- Paid $1,500 or more in wages to an employee in any calendar quarter during the year, or
- Employed one or more workers for at least some part of a day across 20 different weeks of the year
These criteria vary for employers with household or agricultural workers, while some employers (e.g., state and local governments) are exempt from FUTA taxes. Employers working solely with independent contractors are also FUTA-exempt but still must file a tax return (1099-NEC form).
How to Complete a 940 Form
Before filling out a 940 form, there are a few pieces of information each employer will need to have:
- Employee and payroll data (e.g., wages paid, employee headcount, etc.)
- The amount(s) paid in state unemployment taxes (a.k.a., State Unemployment Insurance (SUI)
- Applicable FUTA tax rate for their organization based on available credits or any credit reductions
Form 940 Instructions
Employers must first enter basic information about their organization (e.g., legal name, address, and Employer Identification Number (EIN)) and indicate if any of the listed return types apply.
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Line |
Description |
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Part 1 |
1a |
The abbreviation for where the employer paid SUI. |
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1b* |
Indicates if the employer paid SUI in multiple states. |
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2* |
Identifies if the employer paid SUI in a state with a credit reduction. |
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Part 2 |
3 |
The overall amount of wages paid to all employees that year. |
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4 |
The amount of FUTA-exempt payments made to employees and the nature of those payments (i.e., fringe benefits, retirement matching, etc.). |
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5 |
The amount of paid wages beyond each employee’s wage base limit. |
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6 |
The sum from adding Line 4 to Line 5. |
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7 |
The amount of FUTA taxable wages based on subtracting Line 6 from Line 3. |
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8 |
The pre-adjusted amount of FUTA taxes the employer owes for that year, based on multiplying Line 7 by the applicable tax rate (between 0.6% and 6%). |
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Part 3 |
9 |
An adjusted amount of FUTA taxes the employer may owe (if the entire Line 7 amount was excluded from SUI) based on multiplying Line 7 by 5.4%. |
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10 |
An adjusted amount of FUTA taxes the employer may owe (if some of the Line 7 amount was excluded from SUI or SUI was paid late) based on the Worksheet Line 10 Instructions. |
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11 |
The total amount found after completing Form 940 Schedule A (if necessary). |
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| Part 4 | 12 | The final amount of FUTA taxes the employer owes based on adding Lines 8 – 11 together. |
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13 |
The amount of FUTA taxes the employer deposited for that year, including any overpayments from prior years. |
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14** |
The remaining balance of FUTA taxes the employer owes (if any) based on subtracting Line 13 from Line 12. |
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15 |
The amount (if any) the employer is owed from overpaying their FUTA taxes, based on subtracting Line 13 from Line 12. |
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Part 5 |
16a – 16c |
The amount of FUTA taxes the employer owed in the first three quarters of the tax year. |
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16d |
The amount of FUTA taxes the employer owed in the final quarter of the tax year, as determined by adding Lines 16a–16c together and subtracting the sum from Line 12. |
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17 |
The total amount of FUTA taxes the employer owes (if any) based on adding together Lines 16a–16d. This amount must match the amount in Line 12. |
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Part 6 |
N/A |
Grants the IRS permission to speak with a designated third party (e.g., an employee, CPA, etc.) regarding the information on the form and provides the designee’s contact information. |
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Part 7 |
N/A |
Records the employer’s signature and information necessary to complete the form, such as information on any third-party preparers who completed the form for the employer. |
*Employers using this line must also submit a completed Form 940 Schedule A.
** If the balance owed is more than $500, it must be paid as soon as possible. If the balance owed is $500 or less, the employer may pay it when filing this form.
Amending a 940 Form
To submit an amended return, employers must use the correct version of tax form 940. For example, to amend a 2021 return, an employer needs to use the 2021 Form 940 instead of the current year Form 940.
According to 940 form instructions, filing the amended return only requires employers to re-complete the form with the corrected data and submit it with an explanation for the amendment.
However, amended returns must also be labeled as such by checking the Amended box in the Type of Return area and submitted via mail, even if the original submission was made electronically.
Where Do I Send My 940 Form?
A 940 form can be submitted electronically (IRS-preferred) or via mail.
- Electronic submissions may be made directly or through an IRS-approved Modernized e-file (MeF) provider.
- Mailed submissions should be sent to the designated IRS office based on the employer’s location and intent (i.e., mailing with or without a payment).
Form 940 2024 Due Date
Per Form 940 instructions, employers must file their returns annually by January 31 but may receive an extension if they paid all their FUTA taxes for the year on time.
For example, to report 2024 FUTA taxes, an employer should submit their 2024 Form 940 by January 31, 2025, but may get an extension if they paid their 2024 FUTA taxes on time every quarter.
Tax 940 Form FAQs
What is the Penalty for Filing Form 940 Late?
The IRS imposes a Failure-to-File (FTF) penalty of 5% of the unpaid tax for each whole or partial month a tax return is late. The maximum penalty, however, is generally 25% of the owed tax.
What is Form 940 Schedule R?
Form 940 Schedule R is a supplementary tax form used by specific employers, like a certified professional employer organization (CPEO), to report aggregate FUTA tax information from multiple individual clients operating under common control.
How Often is FUTA Tax Due?
Unlike the 940 tax form, FUTA taxes are due quarterly on the final day of the month directly after a quarter ends. For example, a calendar year’s second quarter (Q2) year runs from April 1 – June 30, so the due date for Q2 FUTA taxes would be July 31.
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