How to File Form 940 Online for Your Business
Seamlessly manage your business's annual Form 940 FUTA tax return with a comprehensive guide to electronic filing and compliance.
Form 940, the Employer’s Annual Federal Unemployment (FUTA) Tax Return, is used by businesses to report and pay their FUTA tax obligations. This federal tax helps fund unemployment benefits. Most employers are required to pay both federal and state unemployment taxes, making Form 940 an important annual filing. Electronic filing offers a convenient way for businesses to meet their tax responsibilities.
Required Information and Setup for Online Filing
Before electronically filing Form 940, businesses need specific information for accuracy. This includes fundamental business identification details: Employer Identification Number (EIN), complete legal business name, any trade name used, and current business address. Accurate identification is paramount for all tax filings.
Businesses must gather FUTA tax-related financial figures. This involves total payments made to all employees throughout the year, identifying payments specifically exempt from FUTA tax, and calculating the wages subject to FUTA tax. The FUTA tax applies to the first $7,000 paid in wages to each employee annually, with a federal tax rate of 6.0%. If a business pays state unemployment taxes on time, it may receive a credit of up to 5.4% against the FUTA tax, effectively reducing the FUTA tax rate to 0.6% in most cases.
Information regarding state unemployment contributions is essential. This includes total amounts paid to state unemployment funds, state unemployment account numbers, and state experience rates, which influence the state unemployment tax burden. If a state has outstanding loans from the federal government for unemployment benefits, it may be designated as a “credit reduction state,” leading to a reduction in the available FUTA tax credit and a higher effective FUTA tax rate for employers in that state. Applicable FUTA tax credits must be accurately accounted for.
A preparatory step for online filing is selecting an IRS-authorized e-file provider or payroll software that supports Form 940 e-filing. The IRS does not offer a direct online filing portal for Form 940, making third-party providers necessary. Businesses can locate authorized e-file providers through the IRS website’s search tool.
Once a provider is chosen, the business needs to establish an account. This process typically involves registration, identity verification, and potentially obtaining an Electronic Filer Identification Number (EFIN). An EFIN is issued by the IRS to approved e-file providers and is necessary for those who file more than 10 returns electronically. It is important to ensure the selected provider maintains robust security measures to protect sensitive business and employee data.
Steps to File Form 940 Electronically
After gathering all necessary information and setting up an account with an IRS-authorized e-file provider, the electronic filing process can begin. Log into the chosen e-file provider’s platform using established credentials. Navigation within the software will lead to the Form 940 filing section.
Within the online system, businesses input the prepared financial and business data into the designated fields. This includes business identification, total payments to employees, FUTA taxable wages, state unemployment contributions, and any applicable credits. The software is designed to guide users through each line item, ensuring all required data is entered correctly.
Following data entry, a thorough review of the generated Form 940 is imperative to verify accuracy. This step allows for the identification and correction of any discrepancies before submission. The e-file provider’s platform will typically have a review function that displays a summary of the form, mirroring the official IRS layout.
The electronic signature or authorization process is the next step, required by the e-file provider to validate the submission. This might involve using a Personal Identification Number (PIN) or completing a digital authorization form, such as Form 8453-EMP. This electronic signature confirms the accuracy of the information and authorizes the provider to transmit the form to the IRS.
The submission process is completed through the online platform. The e-file provider transmits Form 940 directly to the IRS. Businesses can make FUTA tax payments electronically, such as through the Electronic Federal Tax Payment System (EFTPS) or direct debit options offered by the e-file software. FUTA tax payments are generally due quarterly if the liability exceeds $500, with annual payments allowed if the total FUTA tax liability for the year is $500 or less.
After Filing Your Form 940
Once Form 940 is submitted electronically, businesses should receive confirmation from their e-file provider. This typically includes a confirmation number and notifications regarding IRS acceptance. Status updates will keep the business informed about the submission’s progress.
Maintaining diligent record keeping is paramount after filing. Businesses should save electronic copies of the filed Form 940, all submission confirmations, and detailed payment records. These documents should be retained for at least four years after the tax becomes due or is paid, whichever is later, to ensure compliance and for potential IRS review. Organized records are crucial for future reference and to address any inquiries from tax authorities.
If errors are discovered after Form 940 has been filed, an amended return may be necessary. Businesses typically use Form 940-X, Adjusted Employer’s Annual Federal Unemployment (FUTA) Tax Return or Claim for Refund, to correct mistakes. While electronic filing for the original Form 940 is encouraged, amended returns often require paper submission.