What is Form 940?
Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, is used by employers to report and pay federal unemployment tax, which funds state workforce agencies and unemployment compensation programs.
Who Must File Form 940?
You must file Form 940 if:
- You paid wages of $1,500 or more to employees in any calendar quarter, or
- You had one or more employees for at least part of a day in any 20 or more different weeks
Most employers pay both federal and state unemployment taxes. However, some state and local government employers and certain nonprofit organizations are exempt from FUTA.
When is Form 940 Due?
Form 940 is due January 31 for the prior calendar year. If you made timely FUTA tax deposits for the year, you have until February 10 to file.
What is the FUTA Tax Rate?
The FUTA tax rate is 6.0% on the first $7,000 of wages paid to each employee during the year. However, most employers receive a credit of up to 5.4% for state unemployment taxes, reducing the effective FUTA tax rate to 0.6%.
How to Calculate FUTA Tax
FUTA tax is calculated on the first $7,000 of each employee's wages. Once an employee's wages exceed $7,000 for the year, you stop paying FUTA tax on that employee's wages.
Example: If you have 5 employees who each earned $50,000, your FUTA taxable wages are $35,000 (5 employees × $7,000).
When Must You Deposit FUTA Tax?
If your FUTA tax liability for any quarter exceeds $500, you must make a deposit by the last day of the month following the end of the quarter. If your liability is $500 or less, you can carry it forward to the next quarter.
Official Source: IRS Form 940
