Which Payroll Tax Form Summarizes Unemployment Tax Due?

Form 940, the Employer’s Annual Federal Unemployment (FUTA) Tax Return, is used to report and calculate an employer’s annual unemployment tax liability. This tax is an employer-only contribution and is not withheld from employee wages. Funds collected through FUTA tax support the administration of state unemployment benefit programs, providing a financial backstop for states to assist workers who have lost their jobs.

Determining if You Need to File Form 940

An employer must file Form 940 if the business paid $1,500 or more in total wages to employees during any calendar quarter of the current or previous year. The filing requirement is also triggered if the business had at least one employee for any part of a day in 20 or more different weeks during the year.

Separate rules apply for employers of household or agricultural workers. For household employees, the threshold is met if you paid total cash wages of $1,000 or more in any calendar quarter. Agricultural employers must file if they paid $20,000 or more in cash wages to farmworkers during any quarter or employed 10 or more farmworkers during 20 or more different weeks.

Information Required to Complete Form 940

To complete Form 940, you must gather your legal business name, address, Employer Identification Number (EIN), and a complete record of total payments made to all employees for the year.

The FUTA tax is applied to the first $7,000 of wages paid to each employee annually. The standard FUTA tax rate is 6.0%. Most employers can take a tax credit of up to 5.4% for state unemployment tax (SUTA) paid on time, which reduces the federal rate to 0.6%.

Your calculation may be altered if you paid wages in a “credit reduction state.” These are states that have borrowed from the federal government to pay unemployment benefits but have not repaid the loan on schedule. For the 2024 tax year, California, Connecticut, New York, and the U.S. Virgin Islands are credit reduction states. Employers in these jurisdictions will have their 5.4% credit reduced, resulting in a higher FUTA tax rate, which is calculated on Schedule A (Form 940).

Filing and Depositing FUTA Tax

Submitting Form 940 and paying the tax are two distinct processes. The form is filed annually, with a deadline of January 31st. However, employers who made all FUTA tax deposits on time are given an extension to file by February 10th. For example, the 2024 Form 940 is due by January 31, 2025, or February 10, 2025, for those who qualify. Employers can submit the form by mail or through the IRS Modernized e-File (MeF) system.

While the form is filed annually, tax payments may be required quarterly. An employer must make a deposit if their accumulated FUTA tax liability exceeds $500 in any quarter. Deposits must be made electronically through the Electronic Federal Tax Payment System (EFTPS) by the last day of the month following the end of the quarter.

If the tax liability for a quarter is $500 or less, no deposit is needed, and the amount is carried over to the next. When the cumulative liability surpasses $500, a deposit is required. Any final tax due for the year that is $500 or less can be paid with the Form 940 filing.