What is Form 940? The Complete Guide to FUTA Tax Filing for Employers

FUTA tax works alongside state unemployment programs to pay benefits to workers who lose their jobs. Nothing is withheld from paychecks. This guide covers the 2026 tax year, whose return is due February 1, 2027, because January 31 falls on a Sunday.

Below, I go past the definition into calculations, credit reductions, line-by-line instructions, filing, and penalties.

What is Form 940?

Form 940 is the IRS form employers file each year to report and reconcile their federal unemployment (FUTA) tax. FUTA funds the federal share of the unemployment system: the cost of running state programs, half of extended benefits during high unemployment, and loans to states whose funds run low. Form 940 covers only the federal tax, not state unemployment tax (SUTA).

Who Must File Form 940?

For the 2026 return, you must file if either of these is true:

• You paid wages of $1,500 or more to employees in any calendar quarter of 2025 or 2026

• You had one or more employees for at least part of a day in 20 or more different weeks in 2025 or 2026

Count full-time, part-time, and temporary employees, but not partners.

Household employers: FUTA applies once you pay $1,000 or more in cash wages to household workers in any quarter of the current or prior year. Most report it on Schedule H with Form 1040 instead of Form 940.

Farm employers: File if you paid $20,000 or more in cash wages to farmworkers in any quarter, or employed 10 or more farmworkers in 20 or more weeks, of the current or prior year.

Who doesn’t file: The Form 940 instructions generally exempt 501(c)(3) organizations,state and local governments, and tribal governments that took part in the state unemployment system for the full year (the full-year condition applies only to tribes). If you’re a sole proprietor, wages you pay your spouse, parent, or child under 21 are also exempt.

Form 940 vs Form 941

Form 940 is a yearly return for FUTA tax that only employers pay. Form 941 is a quarterly return for federal income tax withheld from paychecks plus Social Security and Medicare (FICA) taxes. Most employers file both.

When is Form 940 Due?

Form 940 is due January 31 for the previous calendar year. If you deposited all your FUTA tax on time, you get until February 10. When a deadline falls on a weekend or legal holiday, it moves to the next business day.

Yearly Filing Deadline

For the 2026 tax year, the return is due February 1, 2027, since January 31 is a Sunday. If every FUTA deposit was made on time, you can file by February 10, 2027.

Quarterly deposits: Work out your liability each quarter. If it’s more than $500, including amounts carried over, deposit it by the last day of the month after the quarter ends. If it’s $500 or less, carry it forward. For 2026:

• Q1: April 30, 2026

• Q2: July 31, 2026

• Q3: November 2, 2026

• Q4: February 1, 2027

All deposits must be made electronically through EFTPS, IRS Direct Pay, or your IRS business tax account, or by your payroll provider.

How to Deposit?

All federal tax deposits must be made electronically. You can use the IRS’s free EFTPS (Electronic Federal Tax Payment System), IRS Direct Pay, or your IRS business tax account. If you use a payroll provider or bank, they can also make the deposits for you.

If you’ve made all your deposits on time, the only balance due when you file should be a fourth-quarter amount of $500 or less that you chose to pay with the return. Pay any balance due electronically

How to Calculate FUTA Tax

To calculate FUTA tax, add up each employee’s FUTA taxable wages and multiply by the net rate. Here’s the full sequence:

1. Total all payments to employees, including bonuses, commissions, and fringe benefits.

2. Subtract exempt payments, such as employer health plan and retirement contributions, and dependent care assistance up to $7,500 for 2026.

3. Subtract pay above $7,000 per employee to get FUTA taxable wages.

4. Multiply by 6.0%, then subtract the state credit of up to 5.4%, leaving 0.6%.

5. Add any credit reduction for wages paid in a credit reduction state.

Say you have 10 employees, each paid $52,000 in 2026, including $2,000 each in employer-paid health insurance. State tax was paid on time, and no one works in a state with a credit reduction.

That’s $42 per employee. Since the year’s total never passes $500, no quarterly deposit is required. You can deposit it by the Q4 deadline or pay it with the return.

How to Reconcile Form 940

Before filing, I recommend a three-way check. Total payments on Form 940 should tie to gross pay in your year-end payroll register. FUTA taxable wages should equal $7,000 or less per employee. Your EFTPS deposit history should add up to line 13 (FUTA tax deposited).

In Part 5, report your quarterly liabilities based on when you paid the wages, and the total of those quarterly liabilities should equal line 12 (total FUTA tax after adjustments). Any credit reduction amount goes in the fourth quarter, whenever the wages were paid.

The IRS instructions also say to enter your liability, not your deposits, on lines 16a–16d, and line 17 must equal line 12. So your Part 5 quarterly liabilities reconcile to line 12, while your EFTPS deposits reconcile separately to line 13.

FUTA Credit Reduction States

A credit reduction state borrowed from the federal government to pay unemployment benefits and hasn’t repaid the loan. If a balance is outstanding on January 1 for two years in a row and isn’t repaid by November 10, employers there lose 0.3% of their credit, plus another 0.3% for each further year.

Because the final list arrives after November 10, the extra tax for the whole year lands in your fourth-quarter deposit.

Current Credit Reduction States

What It Costs You

Go back to the 10-employee example, but put everyone in California for 2025. The base FUTA tax is $420. The credit reduction adds $70,000 x 1.2% = $840. Total FUTA tax is $1,260, or $126 per employee, an effective rate of 1.8%.

If you paid wages in any credit reduction state, check the box on line 2 of Form 940 and complete Schedule A.

Form 940 Instructions: How to Fill Out Each Part

Line numbers follow the 2025 form.

• Top of the form: Enter your EIN, name, and address, and check any type of return that applies: amended, successor employer, no payments to employees, or final.

• Part 1: Enter your state on line 1a, or check line 1b if you paid state unemployment tax in more than one state. Check line 2 if you paid wages in a credit reduction state.

• Part 2: Report total payments (line 3), exempt payments (line 4), and pay above $7,000 (line 5) to get taxable wages (line 7). Multiply by 0.006 on line 8.

• Part 3: Adjust on line 9 or 10 if wages were excluded from state tax or state tax was paid late. Enter the credit reduction from Schedule A on line 11.

• Part 4: Line 12 is your total FUTA tax, line 13 your deposits, line 14 any balance due, and lines 15a–15e any overpayment.

• Part 5: If line 12 is over $500, enter each quarter’s liability (not deposits) on lines 16a–16d. Line 17 must equal line 12.

• Parts 6 and 7: Name a third-party designee if you want, then sign.

Reconcile before filing: Total payments should match your payroll register, taxable wages should be $7,000 or less per employee, EFTPS deposits should equal line 13, and Part 5 should equal line 12.

Schedule A and Schedule R

Schedule A covers multi-state employers and credit reductions. Schedule R covers aggregate filers.

When You Need Schedule A

Attach Schedule A (Form 940), Multi-State Employer and Credit Reduction Information, if you checked line 1b or line 2.

How to Fill Out Schedule A

Check the box for every state where you paid state unemployment tax. For each credit reduction state, enter the FUTA taxable wages you paid there, multiply by that state’s reduction rate, and enter the result. Add up the credit reduction boxes and carry the total to Form 940, line 11.

Schedule R for Aggregate Filers

Schedule R (Form 940), Allocation Schedule for Aggregate Form 940 Filers, splits the wages, credits, and FUTA tax on an aggregate return among each client employer. Two groups must file it: CPEOs and section 3504 agents approved to file for home care service recipients. CPEOs must generally file Form 940 and Schedule R electronically.

Where to Send Form 940

Where you mail Form 940 depends on your state and on whether you’re including a payment. These addresses are from the IRS page Where to file your taxes for Form 940 last updated July 2026.

Private delivery services need the street addresses listed at IRS.gov/PDSstreetAddresses.

How to File Form 940

You can e-file through an IRS-approved provider, business tax software, or your payroll provider. E-filing is optional for most employers, but CPEOs must generally e-file Form 940 and Schedule R. To mail it, use the IRS Form 940 address list. Returns with a payment go to Louisville, KY. Returns without one go to Kansas City, MO, or Ogden, UT, depending on your state.

How to Amend Form 940

File a new Form 940 for the same year with the “Amended” box checked. Enter every amount as it should have been, sign it, attach an explanation, and include a corrected Schedule A if needed. You can e-file it, or mail it to the “without a payment” address even if you include a payment.

Form 940 Penalties

The IRS charges separate penalties for filing late, paying late, and depositing late, plus interest on any unpaid tax.

Late Filing

The failure-to-file penalty is 5% of the unpaid tax for each month or part of a month the return is late, up to 25%. If you can’t pay, file on time anyway. Filing stops the larger penalty from growing.

Late Payment and Deposits

The failure-to-pay penalty is 0.5% of the unpaid tax per month, up to 25%. Missed or late deposits carry their own penalty, set out in IRS Publication 15:

• 2% if the deposit is 1 to 5 days late

• 5% if it’s 6 to 15 days late

• 10% if it’s more than 15 days late, or if you pay directly to the IRS instead of by electronic deposit

• 15% if it’s still unpaid more than 10 days after the first IRS notice, or on the day you receive a notice demanding immediate payment, whichever is earlier

The IRS may waive penalties for reasonable cause.

Does the Trust Fund Recovery Penalty Apply?

No. The Trust Fund Recovery Penalty covers taxes held in trust for employees: withheld income tax and the employee share of Social Security and Medicare. FUTA is paid entirely by the employer and never withheld, so it isn’t a trust fund tax.

Successor Employers

If you buy substantially all of a business and keep its workers, you can count the FUTA wages the seller already paid them that year toward the $7,000 limit. If the seller paid an employee $5,000 and you paid $3,000, only $2,000 of yours is taxable. Check box b at the top of Form 940.

Simplify Form 940 Filing with Keka

Filling out Form 940 is the easy part. The hard part is a full year of tracking: who has crossed $7,000, where each employee works, whether state tax was paid on time, and whether a state lands on the credit reduction list. Staying compliant means getting all of it right before January 31.

Keka’s US payroll software handles federal, state, and local tax calculations across all 50 states and automatically generates IRS and state filings, including Forms 940, 941, W-2, and W-3. Businesses of any size can manage multi-state payroll from one platform.

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FAQs

Can I file Form 940 online?

Yes, you can file Form 940 online. You can e-file through an IRS-approved provider, business tax software, or your payroll provider, and pay any FUTA tax electronically at the same time.

What is the FUTA tax rate?

The FUTA tax rate is 6.0% on the first $7,000 of each employee’s wages. A credit of up to 5.4% for state unemployment tax paid on time brings it to 0.6%, or up to $42 per employee, unless you’re in a credit reduction state.

Is Form 940 the same as Form 941?

No, Form 940 is not the same as Form 941. Form 940 is an annual return for FUTA tax, which only employers pay. Form 941 is a quarterly return for withheld income tax and FICA taxes.

When is Form 940 due?

Form 940 is due January 31 for the previous calendar year, or February 10 if all FUTA deposits were on time. For 2026, it’s February 1 or February 10, 2027.