When Are 940 Payments Due? FUTA Deposit Due Dates

The Federal Unemployment Tax Act (FUTA) works in conjunction with state unemployment systems to provide compensation to workers who have lost their jobs. This federal tax, paid solely by employers, helps fund unemployment benefits across the United States. Employers report FUTA tax obligations annually using Form 940, the Employer’s Annual Federal Unemployment Tax Return. While Form 940 is an annual reporting document, tax payments are often required more frequently throughout the year.

Understanding FUTA Tax and Form 940

FUTA tax is a federal payroll tax that employers pay, distinct from state unemployment taxes. Unlike Social Security and Medicare taxes, FUTA tax is not withheld from employee wages; it is an an employer-only contribution.

Employers generally become subject to FUTA tax if they paid $1,500 or more in wages to employees in any calendar quarter of the current or previous year. Another common threshold is having one or more employees for at least some part of a day in 20 different weeks during the current or previous year.

Form 940 is the annual form used to report FUTA tax liability, typically filed by January 31 of the following year. Employers can receive a credit for timely payments made to state unemployment funds, which can substantially reduce the effective FUTA tax rate.

Calculating Your FUTA Tax Liability

FUTA tax liability is determined by a standard rate and wage base. The FUTA tax rate is 6.0% on the first $7,000 paid in wages to each employee during a calendar year. This $7,000 amount is known as the federal or FUTA wage base. For any employee, the maximum FUTA tax before credits would be $420 ($7,000 x 6.0%).

Employers who pay their state unemployment taxes in full and on time can receive a credit of up to 5.4% against their FUTA tax. This credit effectively reduces the FUTA tax rate from 6.0% to 0.6% in most cases.

However, the full 5.4% credit may not always apply. If a state has outstanding unemployment insurance loans from the federal government, it can be designated as a “credit reduction state.” In such instances, the FUTA credit available to employers in that state is reduced, leading to a higher effective FUTA tax rate for those employers.

Quarterly Deposit Requirements for FUTA Tax

While Form 940 is an annual return, FUTA tax payments are generally required quarterly. Employers must determine their FUTA tax liability for each quarter to assess if a deposit is necessary. The due dates for these quarterly deposits align with the end of each calendar quarter.

FUTA tax deposits are due by the last day of the month following the end of the quarter.

Quarterly Due Dates

First quarter (January 1 – March 31): April 30
Second quarter (April 1 – June 30): July 31
Third quarter (July 1 – September 30): October 31
Fourth quarter (October 1 – December 31): January 31 of the following year

A key threshold determines when deposits are required. If an employer’s FUTA tax liability for a quarter is $500 or less, they are not required to make a deposit for that specific quarter. Instead, this amount is carried forward and added to the liability of the next quarter.

This carry-forward continues until the cumulative FUTA tax liability exceeds $500. At that point, the entire accumulated amount must be deposited by the due date for that quarter. If the total annual FUTA tax liability for the entire year is $500 or less, the employer can pay the entire amount when filing Form 940 by January 31 of the next year, rather than making quarterly deposits.

Making Your FUTA Tax Payments

Employers are generally required to make all federal tax deposits, including FUTA taxes, through electronic funds transfer (EFT). The primary method for electronic payments is the Electronic Federal Tax Payment System (EFTPS). This system offers a secure and efficient way to submit tax payments to the U.S. Treasury.

To make a FUTA tax payment using EFTPS, employers typically need their Employer Identification Number (EIN), along with their bank account and routing numbers. Once logged into the system, users select the tax type (FUTA), the relevant tax period, and the amount to be paid. It is advisable to initiate EFTPS payments at least one business day before the due date to ensure timely processing. Other electronic payment options may include paying through an IRS business tax account or IRS Direct Pay.