Form 940

What is Form 940?

Form 940 is an annual IRS form that employers must file to report and calculate their federal unemployment tax (FUTA). This form ensures that businesses and the IRS are aligned on the amount of FUTA tax owed. Employers are required to report the total wages paid to both full-time and part-time (W-2) employees, with the tax applying only to the first $7,000 of each employee’s wages. After reporting the wages, the form calculates the FUTA tax based on taxable wages and determines the amount owed to the IRS.

Filing this form isn’t just a box to check—it’s essential for staying compliant with federal tax laws. FUTA taxes fund the federal unemployment system, which provides a safety net for workers who lose their jobs. By filing Form 940, employers ensure they’re paying their share and keeping accurate records to avoid penalties.

The form’s structure stays pretty consistent year to year, but it’s crucial to stay in the loop on any updates, like changes to the FUTA tax rate or the $7,000 wage base. Staying informed helps keep the filing process smooth and ensures submissions are spot-on.

Who is required to file Form 940?

Form 940 is a form that most employers in the U.S. need to file, but whether it’s required depends on certain criteria. Here’s a breakdown of when it applies:

Employers must file Form 940 if:

• They paid $1,500 or more in wages: If a business paid $1,500 or more in wages to any W-2 employee (full-time or part-time) in any calendar quarter, they must file.
• They had employees for 20 or more weeks: If the business employed one or more W-2 employees for at least 20 weeks during the previous year, even if those employees were part-time, they are required to file.

There are exceptions to this rule:

• Non-profit organizations: Non-profits, religious organizations, and other 501(c)(3) entities are generally exempt from paying FUTA tax and from filing Form 940.
• Independent contractors: Businesses that only work with independent contractors (not W-2 employees) do not need to file Form 940.
• Other specific employers: Household employers and agricultural businesses may have different filing requirements based on the specifics of their situation.

When is Form 940 due in 2025?

The due date for filing Form 940 for the 2024 tax year is January 31, 2025. However, if all FUTA taxes have been deposited on time throughout the year, the filing deadline extends to February 10, 2025.

Here are some important filing guidelines to keep in mind:

1. If the due date falls on a Saturday, Sunday, or legal holiday, employers can file Form 940 on the next business day.
2. When mailing the form, it will be considered timely if:

• The envelope is correctly addressed.
• It has enough postage.
• It’s postmarked by the U.S. Postal Service on or before the due date.

If using an IRS-designated private delivery service (PDS), the form must be sent on or before the due date to be considered filed on time.

Penalties for Late Filing: Failing to file Form 940 on time can result in penalties:

• Late Filing Penalty: A 5% penalty on the unpaid tax amount for each month (or part of a month) the form is late, up to a maximum of 25%.
• Late Payment Penalty: If the FUTA tax payment is delayed, a 0.5% penalty is charged per month on the unpaid tax, which increases to 1% if an IRS notice is received.
• Interest on Unpaid Taxes: The IRS charges interest on any unpaid tax amounts, calculated daily, based on the current federal short-term interest rate plus 3%.

Where to file taxes for Form 940?

Additional Information:

1. Electronic Filing: Employers have the option to file Form 940 electronically through the IRS e-file system or an authorized e-file provider. This method is quicker, more accurate, and provides confirmation of receipt, making it a convenient choice for many businesses.
2. Mail Filing Tips: If opting to file by mail, the address will vary depending on whether payment is included and the state or employer type. It’s essential to double-check the correct address to prevent any delays in processing.
3. For Tax-Exempt Entities and Special Employer Types: Tax-exempt organizations, as well as specific employer types like household and agricultural employers, may have different filing requirements. It’s always a good idea to refer to the IRS guidelines for your particular situation to ensure you’re following the correct procedures.

This flexibility allows employers to choose the filing method that best fits their needs while staying compliant with IRS regulations.

How to Fill out Form 940?

Completing Form 940 requires careful attention to detail and the inclusion of specific business information. Here’s a step-by-step guide to ensure accurate filing:

Business Information

Businesses begin by entering their Employer Identification Number (EIN), along with their legal business name and address. If the business operates under a trade name, that should also be included.

State Unemployment Taxes

For businesses that pay state unemployment taxes, Part 1 of the form requires specific details:

• If state unemployment taxes were paid in only one state, the state abbreviation is entered in Box 1a.
• If taxes were paid in multiple states, Box 1b should be checked, and Schedule A must be attached to provide the required details for each state.
• Businesses should also indicate any applicable state exemptions or credit reductions.

Calculating FUTA Tax Liability

Part 2 involves calculating the FUTA tax liability:

• Line 3: Record total wages paid to employees, including bonuses, commissions, and fringe benefits.
• Line 4: Deduct exempt payments, such as employer contributions to retirement or health plans.
• Line 5: Calculate taxable FUTA wages by subtracting exempt payments from total wages. Only the first $7,000 of each employee’s wages is subject to FUTA tax.
• Line 7: Multiply taxable wages by the FUTA tax rate (0.6% for 2024) to determine the tax liability.

Adjustments for State Unemployment Taxes

In Part 3, lines 9 through 11 allow businesses to make adjustments based on state unemployment taxes paid. These adjustments can reduce the total FUTA tax liability.

Finalizing the Tax Liability

Part 4 summarizes the final tax liability:

• Line 12: Enter the total FUTA tax liability after applying any adjustments.
• Line 13: Report any payments made during the year to reduce the remaining balance due.

Payment Details

If additional taxes are owed, businesses can use the payment voucher included with Form 940. Payments should be submitted on time and must match the amount due.

Tax Preparer Information

If a tax preparer assisted in completing the form, their contact details should be included in Part 6 by checking the relevant box.

Signature and Mailing

The form must be signed and dated in the designated area. It’s important to double-check the correct IRS address for submission, which depends on the filer’s location and whether a payment is included.

By following these steps, businesses can accurately complete Form 940, avoid common errors, and ensure compliance with IRS regulations.

How to submit Form 940?

Submitting Form 940 can be done electronically or by mail, giving businesses the flexibility to choose the option that best fits their needs. Here’s how it works:

E-Filing Form 940
E-filing is quick, secure, and accurate. It reduces errors, saves time compared to paper filing, and provides an acknowledgment from the IRS within 24 hours.

To e-file:
1. File It Yourself:

• Purchase IRS-approved e-filing software.
• Sign electronically using either a 94x Online Signature PIN (apply 45 days in advance) or a scanned Form 8453-EMP (Employment Tax Declaration for an IRS e-file Return).
• Submit the form through the software.

2. Hire a Professional:

• Use the IRS Authorized e-file Provider Locator to find a tax professional who can handle the process for you.

Mailing Form 940

For those who prefer paper filing, mailing is still an option. Ensure the completed form is sent to the correct IRS address, which depends on your business location and whether you’re including a payment:

• Without Payment: Mail to the address specified for your state (check IRS mailing guidelines).
• With Payment: Use a different IRS address for submissions that include payments.

How to amend Form 940?

Amending Form 940 is a straightforward process that can be completed either electronically or on paper. Here’s how businesses can handle it:

1. Identify the Correct Form Year

Ensure the correct version of Form 940 is used. For amendments related to the 2024 tax year, use the 2024 form. If the amendment is for an earlier year, use the form specific to that tax year.

2. Mark the Amended Return Box

On page 1 of the form, check the box labeled “Amended Return” (box a) to clearly indicate that changes are being made.

3. Update All Relevant Fields

Enter the corrected amounts in the appropriate sections of the form, ensuring accuracy in every update.

4. Provide an Explanation

Attach a detailed explanation of why the return is being amended. This can be done electronically or as a written attachment if submitting the form on paper.

5. Sign and File the Return

Make sure the form is signed before submission. If filing by mail, send it to the address specified for returns without a payment in the IRS instructions.

6. Attach Schedule R (if needed)

For aggregate filers who manage Form 940 on behalf of multiple employers, include Schedule R (Form 940) to specify which employers are affected by the amendments.

The IRS encourages businesses to use the Modernized e-File (MeF) platform for faster and more accurate submissions. For detailed guidance, visit IRS.gov/EmploymentEfile.

How is FUTA Tax Calculated on Form 940?

The FUTA tax calculation on Form 940 follows a few straightforward steps:

1. Determine Wages Subject to FUTA Tax FUTA tax applies only to the first $7,000 of wages paid to each employee during the calendar year. Any payments exempt from FUTA tax, such as fringe benefits or certain types of sick pay, should be subtracted from the total wages.

2. Calculate the Tax Liability Once the taxable wages are determined, multiply that amount by the tax rate:

• The standard FUTA tax rate is 6.0% (0.060).
• If eligible for the maximum state unemployment tax credit of 5.4% (0.054), the effective FUTA rate is reduced to 0.6% (0.006).

3. Adjust for Wages Not Covered by State Unemployment Tax If some wages are excluded from state unemployment tax—such as wages for corporate officers in certain states—apply the full 6.0% FUTA tax rate to those wages.

Example 1: Standard Credit Applied

Employee Wages:

• Mary: $11,000
• George: $2,000
• Jane: $4,000

FUTA Wages Subject to Tax:

• Mary: FUTA tax applies only to the first $7,000 of her wages, so $7,000 is subject to tax.
• George: Since his wages are under $7,000, the full $2,000 is subject to tax.
• Jane: Since her wages are under $7,000, the full $4,000 is subject to tax.

Total FUTA Wages:

• Mary: $7,000
• George: $2,000
• Jane: $4,000

Total FUTA Wages = $7,000 + $2,000 + $4,000 = $13,000

FUTA Tax Rate:
The standard FUTA tax rate is 0.6% (0.006) after applying the maximum state unemployment tax credit.

FUTA Tax Liability:
FUTA Tax Calculation: $13,000 × 0.006 = $78

So, the FUTA tax liability for these employees would be $78.

Example 2: No Credit for Certain Wages

Wages Excluded from State Unemployment Tax:

• Mary and George’s wages are excluded from state unemployment tax.
• Jane’s wages are covered by state unemployment tax.

FUTA Tax Calculation for Mary and George:

• Since their wages are excluded from state unemployment tax, the full FUTA tax rate of 6.0% applies.
• Mary and George’s combined wages subject to FUTA tax: $9,000 ($7,000 for Mary + $2,000 for George).
• FUTA Tax Calculation: $9,000 × 6.0% = $540

FUTA Tax Calculation for Jane:

• Since Jane’s wages are covered by state unemployment tax, the reduced FUTA tax rate of 0.6% applies.
• Jane’s wages subject to FUTA tax: $4,000.
• FUTA Tax Calculation: $4,000 × 0.6% = $24

Total FUTA Tax Liability:
Total FUTA Tax = $540 (Mary & George) + $24 (Jane) = $564

Deposit Requirements:

• If the quarterly liability exceeds $500, the amount must be deposited by the last day of the month following the quarter.
• If the liability is $500 or less, it can be carried over to the next quarter.

Properly calculating FUTA tax helps businesses ensure compliance with tax regulations and avoid penalties.

What is the difference between Form 940 and Form 941?

Form 940 and Form 941 are both important documents in the U.S. tax system, but they serve different purposes related to employment taxes. Form 940 is filed annually and is used to report the Federal Unemployment Tax Act (FUTA) tax, which is entirely the employer’s responsibility. This form is relevant for employers who pay $1,500 or more in wages during a calendar quarter or employ workers for at least 20 weeks in a year. It also accounts for any state unemployment taxes paid.

On the other hand, Form 941 is filed quarterly and covers federal income taxes, Social Security taxes, and Medicare taxes (FICA). Unlike Form 940, which is solely for the employer, Form 941 reports both employer and employee contributions. This form is crucial for tracking wage withholdings and the employer’s share of Social Security and Medicare taxes. Adjustments made on Form 941 often reflect changes in wages, Social Security, and Medicare taxes.

Together, these forms ensure that businesses comply with employment tax regulations, with each form addressing a different aspect of payroll taxation.