Form 940 is the annual return employers use to report Federal Unemployment Tax Act (FUTA) tax. FUTA is an employer-paid unemployment tax and is not withheld from employees\u2019 wages. Because Form 940 is filed only once a year, it can catch employers off guard. Unlike quarterly payroll forms like Form 941, Form 940 may not get much attention until filing time approaches. By then, employers may need to sort out missed FUTA deposits, check whether a credit reduction applies, or confirm whether they were required to file even when no FUTA tax was due.<\/p>\n
Before you start filling out the form, it helps to know which FUTA rules apply to your business and which records you will need. In this guide, we cover Form 940 instructions, including filing tests, tax calculation, state credit rules, deposit requirements, deadlines, and each part of the return, so you can work through it with the right information in front of you.<\/p>\n
Form 940 reports Federal Unemployment Tax Act (FUTA) liability for the calendar year. Whether you have to file comes down to two tests, and meeting either one is enough:<\/p>\n
A few categories of employers follow different rules. Household-only employers report unemployment tax on Schedule H rather than Form 940. Agricultural employers file Form 940 only if they paid $20,000 or more in cash wages to farmworkers in any quarter this year or last year, or had 10 or more farmworkers in 20 different weeks this year or last year. And section 501(c)(3) organizations, state and local governments, and qualifying tribal government employers are generally outside FUTA.<\/p>\n
Note: If you meet the filing tests, you have to file even if no FUTA tax is ultimately due. A zero-liability return is still a required return.<\/p>\n
Tip: Reviewing payroll totals by quarter can help you determine whether you crossed the $1,500 filing threshold during the year.<\/p>\n
The headline FUTA rate looks alarming until you understand the credit that almost every employer qualifies for.<\/p>\n
The standard rate is 6.0%, but it applies only to the first $7,000 of each employee’s wages for the year that’s the FUTA wage base. Everything above $7,000 per employee simply isn’t subject to FUTA.<\/p>\n
The number that matters more in practice is the net rate after the state credit. Employers who pay their state unemployment tax in full, on time, and on the same wages subject to FUTA, and are not in a credit-reduction state, get a credit of up to 5.4%, which drops the effective federal rate all the way down to 0.6%. On $7,000 of wages, that’s $42 per employee a very different figure from the 6% sticker rate.<\/p>\n
Credit-reduction states follow a different calculation. When a state has an outstanding federal unemployment loan and does not repay it within the required period, employers in that state may receive a reduced FUTA credit. The reduction generally increases by 0.3 percentage points for each year the state remains subject to the rule. Employers who paid wages subject to unemployment tax in a credit-reduction state calculate the additional FUTA tax on Schedule A (Form 940).<\/p>\n
Tip: Check the applicable IRS Schedule A before filing to confirm whether wages were paid in a credit-reduction state.<\/p>\n
Form 940 can be filled out much faster when the underlying records are reconciled first.<\/p>\n
Have this information all together before you open the form:<\/p>\n
The two items employers most often have to hunt for are the state tax payment dates<\/em> (which help determine whether you get the full credit) and the list of states where wages were subject to state unemployment tax<\/em> (which drives the multi-state and credit-reduction pieces). Having those ready removes most of the friction.<\/p>\n The form is organized into parts that follow the logic of the calculation first the state details, then the tax before adjustments, then adjustments, then the final tax and deposits.<\/p>\n Common mistakes:<\/strong><\/p>\n FUTA has two separate clocks: the quarterly deposit clock and the annual return clock.<\/p>\n If you deposited all FUTA tax on time and in full, you have until Feb 10 to file Form 940.<\/p>\n Penalty quick-check:<\/strong><\/p>\n Tip: If your cumulative FUTA tax never crosses $500 for the year, you can skip the deposit and just pay it with Form 940 by the return due date.<\/p>\n In the first example, one employee over the wage base creates $42 of FUTA tax and no Part 5 entry. The deposit example shows when a quarter-end deposit is triggered. The Virgin Islands example shows how a credit-reduction state can add a separate FUTA amount on Schedule A.<\/p>\n Not always. If you meet the Form 940 filing tests, you must file even if your FUTA tax liability is zero.<\/p>\n Yes. The IRS Modernized e-File (MeF) system accepts Form 940.<\/p>\n Deposit or pay the balance as required; penalties and interest apply, and you can request abatement after the penalty is assessed.<\/p>\n No. That mandate applies to information returns, not to Form 940 though you can still eFile Form 940 voluntarily through MeF.<\/p>\n Retain payroll and FUTA-tax documentation for at least four years after the tax becomes due or is paid, whichever is later.<\/p>\nForm 940 Line-by-Line Instructions<\/h2>\n
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\n Form 940 Part & Line(s)<\/th>\n What It Covers<\/th>\n What the Filer Enters\/Checks<\/th>\n<\/tr>\n \n Type-of-Return Boxes (top of form)<\/td>\n Return status<\/td>\n Flag the return as Amended, Successor employer, No payments this year, or Final (business closed or stopped paying wages), whichever applies.<\/td>\n<\/tr>\n \n Part 1 \u2013 Return & State Details<\/strong><\/td>\n<\/tr>\n \n Line 1(a)<\/td>\n One-state employer<\/td>\n Single-state payer: enter the two-letter code for the one state where you were required to pay state unemployment tax.<\/td>\n<\/tr>\n \n Line 1(b)<\/td>\n Multi-state employer<\/td>\n Multi-state payer: check this box and complete Schedule A.<\/td>\n<\/tr>\n \n Line 2<\/td>\n Credit-reduction state<\/td>\n Check this box if you paid wages subject to unemployment tax in a credit-reduction state and attach Schedule A.<\/td>\n<\/tr>\n \n Part 2 \u2013 FUTA Tax Before Adjustments<\/strong><\/td>\n<\/tr>\n \n Line 3<\/td>\n Total payments<\/td>\n Enter the total payments made to employees during the year.<\/td>\n<\/tr>\n \n Line 4<\/td>\n FUTA-exempt payments<\/td>\n Enter payments exempt from FUTA and check the applicable boxes for fringe benefits, group-term life insurance, retirement or pension, dependent care, or other exempt payments.<\/td>\n<\/tr>\n \n Line 5<\/td>\n Wages over the FUTA wage base<\/td>\n Enter the portion of each employee’s wages that exceeds the $7,000 FUTA wage base.<\/td>\n<\/tr>\n \n Line 6<\/td>\n Subtotal<\/td>\n Add Lines 4 and 5.<\/td>\n<\/tr>\n \n Line 7<\/td>\n Taxable FUTA wages<\/td>\n Subtract Line 6 from Line 3.<\/td>\n<\/tr>\n \n Line 8<\/td>\n FUTA tax before adjustments<\/td>\n Multiply Line 7 by 0.006.<\/td>\n<\/tr>\n \n Part 3 \u2013 Adjustments<\/strong><\/td>\n<\/tr>\n \n Line 9<\/td>\n No state unemployment tax on FUTA wages<\/td>\n If none of your taxable wages were subject to state unemployment tax, multiply Line 7 by 0.054.<\/td>\n<\/tr>\n \n Line 10<\/td>\n Partial exclusion or late state tax<\/td>\n If some taxable FUTA wages were excluded from state unemployment tax or state unemployment tax was paid late, use the worksheet in the instructions and enter the result.<\/td>\n<\/tr>\n \n Line 11<\/td>\n Credit reduction<\/td>\n Enter the credit-reduction amount from Schedule A, if applicable.<\/td>\n<\/tr>\n \n Part 4 \u2013 Tax, Deposits & Balance<\/strong><\/td>\n<\/tr>\n \n Line 12<\/td>\n Total FUTA tax<\/td>\n Add Lines 8 through 11.<\/td>\n<\/tr>\n \n Line 13<\/td>\n Deposits and prior-year credit<\/td>\n Enter FUTA tax deposits made during the year and any overpayment applied from the prior year.<\/td>\n<\/tr>\n \n Line 14<\/td>\n Balance due<\/td>\n Enter any remaining balance after subtracting deposits. If the balance is $500 or less, you may pay it with the return. If it exceeds $500, it must be deposited.<\/td>\n<\/tr>\n \n Lines 15a\u201315e<\/td>\n Overpayment<\/td>\n Enter any overpayment, choose whether to apply it to the next return or request a refund, and provide direct-deposit information if requesting a refund.<\/td>\n<\/tr>\n \n Part 5 \u2013 Quarterly Liability (Complete only if Line 12 is more than $500)<\/strong><\/td>\n<\/tr>\n \n Lines 16a\u201316d<\/td>\n Quarterly FUTA liability<\/td>\n Enter the FUTA tax liability for each quarter (not the deposits made).<\/td>\n<\/tr>\n \n Line 17<\/td>\n Total quarterly liability<\/td>\n Add the quarterly liabilities. The total must equal Line 12.<\/td>\n<\/tr>\n \n Part 6 \u2013 Third-Party Designee<\/td>\n IRS contact permission<\/td>\n Select “Yes” and provide the designee’s name, phone number, and PIN if authorizing the IRS to discuss the return with that person; otherwise, select “No.”<\/td>\n<\/tr>\n \n Part 7 \u2013 Signature<\/td>\n Signature<\/td>\n The owner, corporate officer, or authorized agent signs, dates, and provides a daytime telephone number.<\/td>\n<\/tr>\n \n Schedules (as needed)<\/td>\n Attachments<\/td>\n Attach Schedule A if wages were paid in multiple states or a credit-reduction state. Attach Schedule R if filing as an aggregate filer (for example, a section 3504 agent or CPEO).<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \n
FUTA Deadlines at a Glance<\/h2>\n
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\n Action<\/th>\n Key Due Date(s)<\/th>\n<\/tr>\n \n Quarterly FUTA deposit (when your undeposited FUTA tax is more than $500 at the end of a quarter)<\/td>\n April 30, July 31, October 31, and January 31\u00a0 moving to the next business day whenever the due date falls on a weekend or legal holiday.<\/td>\n<\/tr>\n \n Form 940 return plus any balance owed<\/td>\n January 31, or February 10 if all FUTA deposits were made on time and in full & moving to the next business day whenever the due date falls on a weekend or legal holiday.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \n
How It Plays Out: Worked Examples<\/h2>\n
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\n Scenario<\/th>\n Rule\/Calculation<\/th>\n Filer Action<\/th>\n<\/tr>\n \n A small employer has one employee who earns $10,000 during the year<\/td>\n FUTA applies only to the first $7,000 of that employee\u2019s wages \u2192 $7,000 \u00d7 0.006 = $42.<\/td>\n Enter $42 on Line 8. Complete Part 5 only if Line 12 is more than $500.<\/td>\n<\/tr>\n \n An employer has 14 employees who each reach the $7,000 FUTA wage base by the end of Q3<\/td>\n Each employee creates $42 of FUTA tax \u2192 14 \u00d7 $42 = $588, so undeposited FUTA is more than $500 at quarter-end.<\/td>\n Deposit by October 31, report the deposit on Line 13, and enter the quarterly liability on Lines 16a\u201316d if Part 5 applies.<\/td>\n<\/tr>\n \n An employer paid $50,000 in FUTA-taxable wages that were also subject to U.S. Virgin Islands unemployment tax in 2025<\/td>\n Extra FUTA tax = $50,000 \u00d7 0.045 = $2,250.<\/td>\n Attach Schedule A and carry the $2,250 credit-reduction amount to Line 11.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n FAQs<\/h2>\n
1. Is Form 940 required if all wages are FUTA-exempt?<\/h5>\n
2. Can an employer eFile Form 940?<\/h5>\n
3. What if FUTA deposits came up short?<\/h5>\n
4. Does the 10-return eFile mandate cover Form 940?<\/h5>\n
5. How long must records be kept?<\/h5>\n