Form 940 is an Internal Revenue Service (IRS) document that lets employers report any Federal Unemployment Tax Act (FUTA) tax payments they’ve made over the calendar year.
What Is FUTA Tax?
FUTA tax is the federal payroll tax business owners pay to finance the federal unemployment benefits program. Employers pay this tax to support individuals who’ve lost their jobs for reasons that aren’t their fault, like a layoff or company closure.
What Is Form 940?
Form 940 is an IRS form for reporting an employer’s annual federal unemployment tax liability. Employers fill out this form each calendar year to remain within federal compliance and help workers who’ve lost their jobs receive unemployment compensation.
Employers can complete this form by providing the following information:
- The total payments they make to employees for the calendar year.
- Any payments exempt from FUTA taxes (i.e., pensions, retirement funds, fringe benefits, etc.).
- Their Employer Identification Number (EIN).
- Which state unemployment taxes they paid
State unemployment tax systems are separate. Employers pay state unemployment tax on a separate state-specific form.
Who Should File Form 940?
As an employer, you must file IRS form 940 if either of the following scenarios applies to you:
- The total taxable FUTA wages you paid employees during any calendar quarter in 2023 (e.g., January to March, April to June, July to September, or October to December) equaled $1,500 or more.
- You had at least one employee work any part of a day for 20 or more weeks in 2023. Account for all temporary, part-time, and full-time employees. Don’t count partners if your business is a partnership.
Exceptions
The following employers are exempt from paying FUTA tax:
- State or local government employers.
- Tax-exempt non-profit organizations (they might be charitable, scientific, educational, or religious organizations).
- Indian tribal governments (if they comply with applicable state unemployment laws and participate in their state unemployment system for the full calendar year).
- Agricultural employers (unless they employed 10 or more farmworkers or paid more than $20,000 in cash wages during any calendar quarter).
- Household employers (unless they paid private home or local college club employees $10,000 or more during any calendar quarter).
What Is the FUTA Tax Rate in 2024?
The FUTA tax rate for the 2024 calendar year is 6%. Note that this tax only applies to the first $7,000 in wages an employer pays an employee during the current calendar year.
After the first $7,000, the employer isn’t responsible for paying more FUTA tax. The federal government refers to this $7,000 figure as the FUTA wage base, but the wage base for your state may differ depending on its guidelines.
For example, imagine you pay $20,000 to an employee in 2023. The FUTA tax will be $7,000 times 6%, equaling $420 in FUTA tax. Even though you paid $20,000 to the employee for the entire year, you only have to pay FUTA tax for their first $7,000.
You might receive a tax credit of up to 5.4% if you paid wages subject to state unemployment tax. This credit can reduce the effective FUTA tax rate to just 0.6% because the 6% tax rate minus the 5.4% credit equals 0.6%.
When Is Form 940 Due?
The due date for filing your Form 940 is January 31, 2024, for the 2023 tax year. However, you can file by February 10, 2024, if you deposited all FUTA tax when it was due throughout the year.
Note: February 10 falls on a Saturday in 2024. The IRS says that if a filing due date occurs on a Saturday, Sunday, or legal holiday, you can file your return on the following business day.
Where to File Form 940
You can report your federal unemployment taxes with Form 940 via one of two methods:
Electronically
You can file electronically using IRS-approved software. You may have to pay a fee to file Form 940 electronically, but it can be more convenient than filing it by mail.
If you print out a completed Form 940 to mail in, you’ll have to send it to a specific address depending on your location and whether you’re sending in a payment:
| If You're In: | Without a Payment: | With a Payment: |
|---|---|---|
| Connecticut, Delaware, District of Columbia, Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia, Wisconsin | Department of the Treasury Internal Revenue Service Kansas City, MO 64999-0046 | Internal Revenue Service P.O. Box 806531 Cincinnati, OH 45280-6531 |
| Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, Wyoming | Department of the Treasury Internal Revenue Service Ogden, UT 84201-0046 | Internal Revenue Service P.O. Box 932000 Louisville, KY 40293-2000 |
| Puerto Rico, U.S. Virgin Islands | Internal Revenue Service P.O. Box 409101 Ogden, UT 84409 | Internal Revenue Service P.O. Box 932000 Louisville, KY 40293-2000 |
| If we haven't listed your place of business | Internal Revenue Service P.O. Box 409101 Ogden, UT 84409 | Internal Revenue Service P.O. Box 932000 Louisville, KY 40293-2000 |
| EXCEPTION for tax-exempt organizations; federal, state, and local governments; and Indian tribal governments, regardless of your location | Department of the Treasury Internal Revenue Service Ogden, UT 84201-0046 | Internal Revenue Service P.O. Box 932000 Louisville, KY 40293-2000 |
How to Fill Out Form 940
Step 1 – Fill Out Your Business Details
Fill out your business information, including your EIN, business name, trade name (if applicable), and address.
Step 2 – Provide State Unemployment Tax Information
Clarify if you paid state unemployment tax in one or more states. If you only had to pay state unemployment tax in one state, write the state’s abbreviation. If you had to pay state unemployment tax in more than one state, fill out Schedule A (Form 940) and attach it to your main Form 940.
Step 3 – Calculate Your FUTA Tax Before Adjustments
Input the total payments you made to employees during 2023. Indicate how much of those payments are excluded from the FUTA tax.
In this section, you can see your FUTA tax liability before applying any credits or making any relevant adjustments.
Step 4 – Determine Your Adjustments and Credits
Adjust your total FUTA tax liability, depending on whether any of the taxes you paid were excluded from state unemployment taxes or if you paid any state unemployment taxes late.
If you have a credit reduction from Schedule A (Form 940), you can enter that into the adjustments section.
The IRS differentiates between credit reduction states and non-credit reduction states.
Step 5 – Fill Out Your FUTA Tax and Balance Due/Overpayment
Write your balance due for the tax year after considering credits, adjustments, and tax payments you’ve already made. You can also account for overpayments from the previous year.
If the final balance is less than the amount you’ve already paid for the tax year, clarify if you want the IRS to send you a refund. If not, you can apply the overpayment to next year’s tax return.
Step 6 – Report Your FUTA Liability by Quarter
This step is only applicable if your total FUTA tax liability is greater than $500. If it applies to you, fill out your FUTA liability for each calendar quarter. Add adjustments where necessary.
If your FUTA tax liability is less than $500, you can skip this step.
Step 7 – Name a Third-Party Designee
If you’d like, you can name a third-party designee. This step lets you grant a trusted tax preparer or another individual the authority to discuss your Form 940 with the IRS. Consider completing this step to let the third-party designee supply the IRS with any information you accidentally omitted from the return.
Alternatively, you can select “No” to forgo naming a third-party designee.
Step 8 – Sign Your Name
Declare that all information you’ve provided is truthful and accurate, and sign your name. Depending on your business type, different people can sign the form:
- Sole proprietorship: The sole owner of the business:
- Partnership (including an LLC the government treats as a partnership): An authorized officer, member, or partner.
- Corporation (including an LLC the government treats as a corporation): A principal officer, like the vice president or president.
- Trust or estate: The fiduciary.
Step 9 – Complete a Payment Voucher
Form 940 comes with a payment voucher, Form 940-V. You can only pay unemployment taxes using 940-V if the FUTA tax you owe for the fourth quarter (in addition to any undeposited amounts from subsequent quarters) is $500 or less.
If you owe more than $500, deposit your payments via the Electronic Federal Tax Payment System (EFTPS).
Form 940 vs. Form 941
While Form 940 and Form 941 are both tax forms employers in the U.S. use, they have notable differences:
- Purpose: Employers use Form 940 to report and pay their FUTA tax liability, while they use Form 941 to pay their quarterly federal payroll taxes.
- Tax Type: Form 940 covers federal unemployment tax, which helps people who’ve lost their jobs get back on their feet. Form 941 covers quarterly federal payroll taxes, including Medicare tax, Social Security tax, and income tax withholding.
- Due Dates: Form 940 is usually due by January 31 each year, while Form 941 requires you to make quarterly tax payments. The due dates for Form 941 are April 30, July 31, October 31, and January 31.
- Wage Base Limit: Form 940 includes FUTA tax for the first $7,000 of each employee’s wages. For Form 941, Medicare and Social Security taxes don’t have wage base limits. However, income tax withholding has a wage base limit of $160,200 for the 2023 tax year.
