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Form 940: When and How to File Your FUTA Tax Return

You’ve started a small business, hired some employees, and all of a sudden, you’re responsible for new tax forms—like Form 940. But what exactly is Form 940?

Here, we go over the what, why, when, and how of this tax form, so when it’s time to file, you know everything you need to get it done stress-free.

This article is Tax Professional approved Group

What is Form 940?

Form 940, Employer’s Annual Federal Unemployment Tax Return, is an IRS form that employers use to report any FUTA tax payments they’ve made over the course of the calendar year, as well as any outstanding FUTA payments they have yet to make.

FUTA stands for Federal Unemployment Tax Act. It’s a tax that businesses pay—unlike Medicare, it’s not deducted from the employees’ wages. FUTA tax helps cover the cost of unemployment compensation and state employment agencies. The FUTA tax rate is 6.0%, and it applies to the first $7,000 that each of your employees earns.

The actual amount you end up paying might end up being much less than 6.0%, depending on your state’s individual FUTA tax credit—in many states, you only end up paying 0.6%.

Form 940 is different from a similar tax form, Form 941. Form 941 is the Employer’s Quarterly Federal Tax Return, which employers use to report any payroll taxes (like Social Security tax, Federal Income tax, and Medicare) withheld from employees’ paychecks.

For more information about FUTA payments and how to make them, check out our guide to FUTA.

Do I have to file Form 940?

According to the IRS, you must make FUTA payments and file Form 940 if either of these is true:

  • You paid wages of $1,500 or more to employees during the calendar year.
  • You had at least one employee for at least some part of a day in any 20 or more different weeks. (Full-time, part-time, and temporary employees all count, and they don’t need to have worked a full business day to count.)

If you only work with independent contractors, you don’t need to worry about filing Form 940 as you don’t pay unemployment taxes on their earnings. Instead, you’re responsible for filing Form 1099-NEC for each contractor.

When do I file Form 940?

Unlike your FUTA payments, which are due every calendar quarter, you must submit Form 940 annually.

The due date for filing Form 940 for 2021 is January 31, 2022. (However, if you’re up to date on all your FUTA payments, you can take an additional ten days and file Form 940 by February 10, 2022.)

How Bench can help

The deadline for filing Form 940 is one of many tax form filing deadlines that can make the start of your year stressful. It’s easy to start feeling overwhelmed with all the tax filing responsibilities as a business. But with Bench, the process is simplified. We provide you with all the information you need to file a business tax return, send 1099s, and more. Or, if you’re a completely hands-off type of person, we can even file your taxes for you. We can’t handle your employment tax, but we can win you back the time needed to get it done. Learn more.

How to fill out Form 940

Form 940 is a 2-page form from the IRS. Here’s what the first page looks like:

2021 Form 940

First, you must fill out some basic information about your business. This includes your Employer Identification number (EIN), business name, trade name (or DBA), and address. Note that you cannot use a different Tax Identification number (TIN) in place of an EIN like a Social Security number.

After that, Form 940 is divided into seven parts.

Part 1

This is where you tell the IRS about how many different states you pay unemployment taxes in. Line 1a is where you’ll specify whether you pay unemployment taxes in a single state, Line 1b is for multi-state employers, and Line 2 is where you’ll specify if you work in a credit reduction state. If you check the boxes in Line 1b or 2, complete Schedule A of Form 940.

Part 2

This is where you’ll calculate your FUTA tax liability. Line 3 will ask you for all payments you made to employees, Line 4 will ask you for any FUTA-exempt payments (like fringe benefits, group-term life insurance, etc.), while Lines 6-8 are where you’ll calculate your total taxable FUTA wages and total FUTA taxes before adjustments.

Part 3

Here you’ll make any adjustments that take into account your state’s unemployment tax rules. If all of the FUTA wages you recorded in the previous section were excluded from state unemployment tax, multiply Line 7 by 0.054, record it in Line 9, and go to Part 4. If they weren’t, use the worksheet on page 11 of this instruction booklet to calculate your adjustments.

Part 4

Line 12 will ask you to add Lines 8 + 9 + 10 + 11 to calculate your total FUTA tax after adjustments. Line 13 will ask you for any FUTA payments (or overpayments) you’ve made so far or in the prior year. Lines 14 and 15 determine whether you have an outstanding balance due (or any overpaid fees).

Part 5

If the amount you calculated in Line 12 is more than $500, use boxes 16a-d to report your FUTA liability for each quarter. (Note: each box should list your liability for that quarter, not your quarterly payment.) Make sure that these all add up to what you had in Line 12.

Part 6

This is where you’ll designate someone (an employee or tax preparer) to discuss Form 940 with the IRS on your behalf.

Part 7

Once you’ve completed Form 940, sign your name here.

Payment Voucher

If you end up with any FUTA taxes due, you’ll have to include a payment voucher with your 940, which you can find on page 3 of the PDF version of Form 940 supplied by the IRS. Enter your Employer Identification number (EIN), total payment amount, business name, and address before submitting.

Where to file Form 940 (and can you file it electronically?)

While you may file a physical copy of Form 940, the IRS prefers that you e-file.

If you file a paper return, where you file depends on whether you include a payment with Form 940. To figure out where to mail your physical Form 940, consult this table provided by the IRS.

To e-file, follow the instructions on the IRS website.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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