Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return
Report and pay your annual federal unemployment tax as an employer.
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About Form 940
Form 940 is the annual return employers use to report Federal Unemployment Tax Act (FUTA) tax. FUTA tax, together with state unemployment systems, funds unemployment compensation for workers who have lost their jobs. Only employers pay this tax, and it is not withheld from employee wages.
Employers generally file Form 940 once a year to report the total FUTA tax owed for the calendar year. The form reconciles the tax due against any deposits already made during the year and shows whether a balance is due or an overpayment exists.
The amount of FUTA tax depends on wages paid and on credits for state unemployment contributions. Employers in states with unpaid federal loans, known as credit reduction states, may owe more. Follow the form instructions to apply the correct rate and credits.
Who needs to complete it
- Employers who paid wages meeting the FUTA filing thresholds during the year.
- Businesses with employees who owe federal unemployment tax.
- Employers of household or agricultural workers who meet the applicable FUTA tests.
- Companies operating in credit reduction states that may owe additional FUTA tax.
How to fill out Form 940
- 1Enter your business name, address, and Employer Identification Number.
- 2Report the total payments made to all employees during the year.
- 3Subtract payments that are exempt from FUTA and amounts over the taxable wage base as directed.
- 4Calculate your FUTA tax before adjustments using the rate on the form.
- 5Apply any state unemployment credit and credit reduction adjustments if they apply.
- 6Reconcile your total tax against deposits already made to find the balance due or overpayment.
- 7Follow the line-by-line instructions on the official form for the quarterly liability section.
- 8Sign, date, and file the return by the due date, paying any balance owed.
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Frequently asked questions
Is FUTA tax withheld from employees?
No. FUTA tax is paid entirely by the employer. It is not deducted from employee wages.
How often do I file Form 940?
Form 940 is generally filed once a year. However, FUTA tax deposits may be required more often during the year depending on the amount owed.
What is a credit reduction state?
A credit reduction state is one that has an unpaid federal unemployment loan. Employers in those states receive a reduced FUTA credit and may owe additional tax.
How is Form 940 different from Form 941?
Form 940 reports annual federal unemployment tax paid by the employer. Form 941 is filed quarterly and reports income tax, Social Security, and Medicare taxes withheld from employee wages.