{"id":1457,"date":"2023-02-04T04:10:42","date_gmt":"2023-02-04T04:10:42","guid":{"rendered":"https:\/\/taxreliefprofessional.com\/?page_id=1457"},"modified":"2023-08-27T19:31:12","modified_gmt":"2023-08-27T19:31:12","slug":"form-940","status":"publish","type":"page","link":"https:\/\/taxreliefprofessional.com\/irs-forms\/form-940","title":{"rendered":"IRS Form 940"},"content":{"rendered":"

<– Guide to IRS Forms<\/a><\/p>\n

Form 940 is the annual Federal Unemployment Tax Act (FUTA)<\/a> report that employers must file. The form is used to report the amount of FUTA tax that an employer has paid during the year.<\/p>\n

During the Great Depression, 25 percent of American workers were unemployed. There was no unemployment insurance at the time, and people were in dire straits.<\/p>\n

As a result, Congress passed a bill to relieve Americans of this crisis. It would also address future economic declines. The bill requires employers to contribute to a national fund for unemployment insurance benefits.<\/p>\n

Most employment taxes require the employer to match the employees\u2019 contributions. However, the employee does not contribute to the unemployment insurance fund. Instead, employers are liable for the whole contribution.<\/p>\n

IRS Form 940: What is the FUTA?<\/strong><\/p>\n

Let\u2019s talk more specifically about the FUTA. For example, it\u2019s separate from state unemployment insurance (UI), which also goes to the federal unemployment fund.<\/p>\n

The FUTA tax rate is currently 6.0 percent after the first $7,000 of wages paid to employees during the year. However, employers can claim a credit for state UI \u00a0\u00a0they paid. This reduces the amount of FUTA tax they owe. The \u00a0\u00a0credit is 5.4 percent, which means that the effective FUTA tax rate for most employers is 0.6 percent.<\/p>\n

The FUTA tax is overseen by the Internal Revenue Service (IRS), which is perhaps not so surprising. FUTA requires employers to report and pay the tax annually by filing Form 940 with the IRS.<\/p>\n

Employers who have no employees during a calendar quarter have no FUTA tax liability for that quarter. If, however, they have employees in other quarters of the same calendar year, they need to file Form 940 annually.<\/p>\n

Reporting FUTA Contributions on Form 940<\/strong><\/p>\n

On the form, you will report the total wages paid to employees during the year, as well as the number of employees, and the amount of FUTA tax you paid. You will also need to report any adjustments \u00a0\u00a0credits that you are claiming against the tax, such as the credit for state unemployment taxes paid.<\/p>\n

Tax laws change frequently. For the following section, we\u2019ll be referring to \u201cForm 940 for 2022\u201d. If you\u2019re working on a FUTA report for another year, be sure to apply the tax law from the corresponding year. Contact a tax professional for more details.<\/p>\n

Top Section\/Bottom Section<\/em><\/p>\n

These sections are self-explanatory.<\/p>\n

In the top section, fill in your employer identification number (EIN), name, trade name if you have one, and address. Check the type of return in the box on the right.<\/p>\n

In the bottom section, sign and print your name.<\/p>\n

Part 1<\/em><\/p>\n

This part shows in which states the employer contributed unemployment taxes.<\/p>\n

Part 2<\/em><\/p>\n

Show your FUTA tax liability here. Carefully fill in these boxes and do the calculations. Remember to exclude the first $7,000 of wages you paid to employees.<\/p>\n

Part 3<\/em><\/p>\n

This is where you record and calculate the adjustments to your tax liability.<\/p>\n

Part 4<\/em><\/p>\n

This part shows your total FUTA tax, including adjustments. At this point, it\u2019s clear whether the employer owes the IRS, or the IRS owes the employer a refund.<\/p>\n

Part 5<\/em><\/p>\n

Calculate the breakdown of the balance due into quarters in this part. This is only necessary if the total in Part 4 exceeds $500.<\/p>\n

Part 6<\/em><\/p>\n

Lastly, Form 940 offers you the option to designate a third party to work with the IRS on behalf of the employer.<\/p>\n

Who Needs to File the FUTA Report?<\/strong><\/p>\n

The IRS<\/a> generally uses three tests to determine which employers need to pay FUTA tax.<\/p>\n

    \n
  1. General Test (Note: this does not apply to wages you pay household or agricultural employees)<\/em>\n