Form 940: What It Means for Employers

What it means in practice

What the form is. The IRS says employers use Form 940 to report annual Federal Unemployment Tax Act tax, which together with state systems funds unemployment compensation, and that only employers pay it. Regulation 26 CFR 31.6011(a)-3 requires every person who is an employer under FUTA to make a return for each calendar year and prescribes Form 940. The tax itself is explained in Federal Unemployment Tax Act (FUTA); this entry covers the return. Quarterly wages and FICA go on a separate return, Form 941.

Who files. The 2025 instructions say an employer files if it paid wages of $1,500 or more in any calendar quarter of 2024 or 2025, or had one or more employees for some part of a day in 20 or more different weeks in either year, counting full-time, part-time and temporary employees but not a partnership's partners. Publication 15 (2026) applies the same tests to 2025 and 2026. Separate tests apply to household and agricultural employers. No Form 940 is required for state or local government employers or for a tribal government that participated in the state unemployment system for the full year, and section 501(c)(3) organizations generally are not subject to FUTA tax. Household employers generally file Schedule H (Form 1040), but one with other employees may include household employees on Form 940.

When it is due. Under 26 CFR 31.6071(a)-1(c), the return is due on the last day of the first calendar month after the year, or by the 10th day of the second month if timely deposits paid the tax in full. Topic 759 states this as January 31 or February 10, moving to the next business day for a weekend or legal holiday. The 2025 instructions therefore list February 2, 2026, and February 10, 2026. A properly addressed paper return postmarked by the U.S. Postal Service, or sent by an IRS-designated private delivery service, by the due date is treated as on time.

The top of the form. The employer enters its EIN and legal name exactly as used on Form SS-4, on both pages. The Type of Return boxes are (a) Amended, (b) Successor employer, (c) No payments to employees in the year, and (d) Final: business closed or stopped paying wages; more than one may be checked. A separate Aggregate Return Filers Only section, new for 2025, asks a filer combining several employers on one return to identify itself as a section 3504 agent, a certified professional employer organization (CPEO) or other third party, such as a non-certified PEO.

Parts 1 and 2: the starting figures. Part 1 asks for the two-letter abbreviation of the one state where state unemployment tax was required (line 1a), or a check on line 1b for a multi-state employer, and a check on line 2 if wages were paid in a credit reduction state; either box requires Schedule A. Line 3 is total payments to all employees, including payments not taxable for FUTA. Line 4 is exempt payments, with boxes 4a to 4e for fringe benefits, group-term life insurance, retirement or pension, dependent care (up to $7,500 per employee in the draft 2026 instructions, raised by P.L. 119-21) and other. Line 5 is each employee's pay over $7,000 after exempt payments, line 6 adds lines 4 and 5, line 7 (line 3 minus line 6) is total taxable FUTA wages, and line 8 is line 7 times 0.006.

Part 3: adjustments. Line 9 applies only if all taxable FUTA wages were excluded from state unemployment tax (line 7 times 0.054), which brings the rate to the full 6.0%; it does not apply merely because a state assigned a 0% rate. Line 10 is the result of a worksheet in the instructions, used when some wages were excluded from state tax or any state tax was paid after the Form 940 due date; the worksheet is kept with the employer's records, not attached. Line 11 is the total credit reduction from Schedule A.

Parts 4 to 7: the result. Line 12 adds lines 8 through 11 and line 13 is FUTA tax deposited for the year, including any overpayment applied from the prior year. Line 14 is a balance due; line 15a is an overpayment, which line 15b applies to the next return or refunds, with direct deposit details on lines 15c to 15e, which the 2025 instructions added. Part 5 (lines 16a to 16d and 17) reports liability, not deposits, by quarter when line 12 is over $500, and line 17 must equal line 12. Part 6 names an optional third-party designee, and Part 7 is the signature by an authorized person, such as the owner, a principal officer, a fiduciary or an agent with a valid power of attorney or Form 8655.

Schedule A and credit reduction states. Schedule A (Form 940), Multi-State Employer and Credit Reduction Information, is required for an employer that paid state unemployment tax in more than one state or paid wages in a credit reduction state, even if it operates in only one state. Its instructions say to mark every state where state unemployment tax had to be paid, enter FUTA taxable wages for each credit reduction state (excluding wages exempt from that state's tax), multiply by the reduction rate, and carry the total to line 11. For 2025, California is 0.012 and the U.S. Virgin Islands 0.045. For the 2026 return, the Department of Labor's potential 2026 table lists California (1.5% for its outstanding advance plus an estimated 3.8% "BCR add-on," a preliminary 5.3%) and the U.S. Virgin Islands (4.8%), notes that the BCR add-on can be waived and replaced by the 2.7 add-on, and says the final figures are not set until after November 10, 2026. The IRS draft 2026 Schedule A names the same two with rates left blank.

Schedule R for aggregate filers. Section 3504 agents approved on Form 2678 and CPEOs that file an aggregate Form 940 must attach Schedule R (Form 940), the Allocation Schedule for Aggregate Form 940 Filers (Rev. December 2024). Each client gets a line with its EIN and state and its share of the amounts on lines 7 and 9 through 13. Continuation sheets are used for more than 15 clients, and the totals on line 19 must match the aggregate Form 940 before filing. CPEOs must generally file Form 940 and Schedule R electronically.

Deposits and paying the balance. Although the return is annual, the tax is figured quarterly and deposited once the cumulative liability is over $500, by the last day of the month after the quarter; those rules are covered in federal tax deposit, and deposits are made by electronic funds transfer, for example through EFTPS. Under the line 14 instructions, a balance over $500 must be deposited; one of $500 or less may be deposited, paid by card, paid by electronic funds withdrawal when e-filing, or paid by check with Form 940-V; and an amount under $1 need not be paid.

Amended returns. The instructions say to amend on the form for the year being corrected, check box a, enter all the amounts that should have been on the original, sign, and attach an explanation, for example that state unemployment tax was paid after the Form 940 due date and the employer is now claiming the credit. A paper amended return goes to the without-payment address even if a payment is enclosed. Amended returns can be e-filed through Modernized e-File, and an amended aggregate return needs Schedule R only for the clients with adjustments.

Final returns and zero-wage years. An employer with no payments to employees in the year checks box c, signs Part 7 and files. An employer that closed or stopped paying wages checks box d, completes all applicable lines and attaches a statement naming the person who keeps the payroll records and the address where they are kept. Publication 15 says that until a final return is filed, a Form 940 is still required for years with no wages. When a business is sold or transferred, each employer that meets a filing test files; a successor that acquires substantially all of a business and keeps its employees checks box b and may count a FUTA-liable predecessor's wages toward the $7,000 base.

E-filing, penalties and records. The IRS e-file page says Form 940, including an amended return, can be filed through approved software or an authorized provider, with acknowledgment within 24 hours; signing requires a 94x online signature PIN (allow at least 45 days) or a scanned Form 8453-EMP, depending on the software. For penalties the instructions point to Publication 15, which describes a failure-to-file penalty of 5% of unpaid tax per month, generally capped at 25%, and a failure-to-pay penalty of 0.5% per month. Abatement requests go on Form 843, not on Form 940. The draft 2026 instructions describe a new Automatic Exemption from Penalty program, which began in July 2026 and replaces First Time Abate relief for filers that timely filed and paid for the prior 3 years. Publication 15 says to keep employment tax records, including copies of returns filed and confirmation numbers, for at least 4 years.

Where states differ. State unemployment programs set their own rates, reports and taxable wage bases; see SUTA. As an example only, California's Employment Development Department says it and the IRS compare Form 940 amounts each year with Total Subject Wages (Line C) and UI Taxable Wages (Line D2) on the state's quarterly DE 9 return, a check called FUTA recertification, and that an out-of-balance result can bring a notice from either agency.

Example 1 (illustration): a simple 2026 return. A single-state employer outside any credit reduction state pays four employees $52,000, $30,000, $6,500 and $9,000 in 2026, including $2,000 and $1,000 of exempt health benefits for the first two, and pays state tax on time. Line 3 is $97,500 and line 4 is $3,000. Line 5 is $43,000 + $22,000 + $0 + $2,000 = $67,000, so line 6 is $70,000 and line 7 is $27,500 ($7,000 + $7,000 + $6,500 + $7,000). Line 8 is $27,500 x 0.006 = $165.00, which is also line 12. Because line 12 is not over $500, Part 5 is left blank and any undeposited amount may be paid with the return.

Example 2 (illustration): Schedule A and Part 5. A California employer paying state tax on time pays 10 employees $5,000 a month in 2025. Each passes $7,000 in February, so line 7 is $70,000 and line 8 is $420.00. On Schedule A, $70,000 x 0.012 = $840.00 goes to line 11, making line 12 $1,260.00. Part 5 shows $420.00 on line 16a and, because credit reduction is recorded in the fourth quarter, $840.00 on line 16d. The first-quarter $420.00 is not over $500 and carries forward; with the fourth-quarter amount the cumulative $1,260.00 must be deposited by February 2, 2026.

Example 3 (IRS worksheet example). In the 2025 instructions, an employer with $21,000 on line 7 has a maximum credit of $1,134.00 ($21,000 x 0.054). It paid $100.00 of state tax on time, earns an additional credit of $104.00 on $8,000 of state wages at a 4.1% experience rate (0.013 x $8,000), and paid $78.00 late, which counts at 90% ($70.20). The credit is $274.20, so line 10 is $859.80. On those figures, line 8 would be $126.00 and line 12 $985.80.

Question: Do I file Form 940 if I paid no wages this year? Generally yes, unless a final return was filed; the employer checks box c and signs (Form 940 instructions).

Question: Can a payroll provider file it for me? Yes, but the instructions say the employer remains responsible if the third party fails to act, except for wages a CPEO pays under a CPEO contract. See payroll service.

Question: Are FUTA corrections made on Form 941-X? No. The instructions say to amend on the Form 940 for the year being corrected, with box a checked.

This entry describes Form 940 and its schedules and does not decide whether a particular employer must file or how any line should be completed.

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