Form 940

Form 940, titled “Employer's Annual Federal Unemployment (FUTA) Tax Return,” is an IRS form used by employers to report and pay federal unemployment taxes. The Federal Unemployment Tax Act (FUTA) provides funds for paying unemployment compensation to workers who have lost their jobs. Employers file Form 940 annually to calculate their FUTA tax liability, report payments made during the year, and reconcile any outstanding balances. This tax helps finance state workforce agencies and job training programs.

Key Facts

• Purpose: To report and pay the federal unemployment tax (FUTA).
• Who Must File: Employers who paid wages of $1,500 or more in any calendar quarter or had at least one employee during any day of a week in 20 or more different calendar weeks.
• Tax Rate: The FUTA tax rate is 6.0% on the first $7,000 of wages paid to each employee annually, but credits for state unemployment taxes can reduce it to as low as 0.6%.
• Filing Frequency: Filed annually by January 31st for the previous calendar year.
• Payment Schedule: Employers generally pay FUTA tax quarterly if the liability exceeds $500; otherwise, payment can be deferred until the annual filing.

1. Who is required to file Form 940?

Employers who paid $1,500 or more in wages in any calendar quarter or employed at least one person for 20 or more weeks during the year.

2. What wages are subject to FUTA tax reported on Form 940?

The first $7,000 of wages paid to each employee annually are subject to FUTA tax.

3. How is the FUTA tax rate determined?

The standard FUTA tax rate is 6.0%, but employers can claim credits for state unemployment taxes paid, reducing the effective rate to as low as 0.6%.

4. When is Form 940 due?

Form 940 must be filed annually by January 31st following the tax year.

5. What happens if I don’t pay FUTA taxes on time?

Late payments may result in penalties and interest charges from the IRS.