IRS Form 940: How to Handle Federal Unemployment Tax (FUTA) as an Employer

If you pay wages to employees, the IRS usually expects you to file Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return once a year. Form 940 is how most employers report and pay their federal unemployment tax, which helps fund unemployment benefits through state workforce agencies, not benefits you pay directly.

Form 940 is filed with the Internal Revenue Service (IRS), usually by January 31 for wages paid in the previous calendar year (with some flexibility if all FUTA tax is deposited on time). You typically file this form if you paid $1,500 or more in wages in any calendar quarter, or had one or more employees for at least part of a day in 20 different weeks in the year (rules can vary for certain types of workers and entities).

What Form 940 Is Really For (And Whether It Applies to You)

Form 940 is not an income tax form for you or your employees. It is a business payroll tax return used to report Federal Unemployment Tax (FUTA) on wages you paid to employees.

You typically must file Form 940 if:

• You paid $1,500 or more in wages in any calendar quarter in the current or prior year, or
• You had one or more employees for at least part of a day in 20 or more different weeks in the current or prior year (not counting some household or farm workers, which have separate rules).

You generally do not file Form 940 if:

• You only paid household employees (you may use Schedule H instead),
• You only paid farm workers and do not meet FUTA thresholds for agriculture, or
• You are a tax-exempt organization that is entirely exempt from FUTA (for example, many 501(c)(3) nonprofits).

Because rules can vary based on your business structure, workers, and state, verify your situation using official IRS instructions or a qualified tax professional.

Key terms to know:

• FUTA tax — A federal payroll tax paid by employers (not taken out of employees’ paychecks) to fund unemployment programs.
• Taxable wages — The portion of each employee’s wages subject to FUTA, typically up to a certain annual limit per employee.
• State unemployment tax (SUTA) — State-level unemployment insurance tax you pay to your state workforce or unemployment agency, often giving you a credit on your FUTA tax.
• Credit reduction state — A state that owes money to the federal unemployment fund; employers in these states get a reduced FUTA credit and may owe more FUTA tax.

Where to Go Officially: IRS and State Unemployment Systems

Two official systems are involved with Form 940:

• Internal Revenue Service (IRS) — This is the federal agency that receives your Form 940, FUTA tax deposits, and handles notices about underpayment or filing issues. You can file Form 940 electronically through the IRS e-file for business returns using approved software or a payroll provider, or by paper mail to the address in the current IRS instructions.
• State Workforce/Unemployment Agency — You typically also pay state unemployment tax to your state’s official workforce or unemployment insurance agency, which affects how much FUTA you owe. Search for your state’s official unemployment insurance or workforce agency portal (look for a .gov website) to review your state unemployment account, rates, and payment records.

If you are unsure whether you must file Form 940, you can call the IRS Business & Specialty Tax line (find the number on the official IRS site) and say something like: “I’m an employer trying to confirm whether I need to file Form 940 for this year based on wages I paid.”

What to Prepare Before You Fill Out Form 940

You’ll complete Form 940 faster if you pull together specific payroll and state-unemployment information first. These are documents and records a small employer is commonly asked to reference or provide.

Documents you’ll typically need:

• Payroll records or payroll summaries for the year, including each employee’s total wages and when they were paid.
• State unemployment tax reports or account statements showing wages subject to state unemployment and how much state unemployment tax you paid.
• Prior-year Form 940 (if filed) so you can keep consistency in reporting, employer identification, and check any carryovers or adjustments.

You also need your Employer Identification Number (EIN), your legal business name and address exactly as on file with the IRS, and information on any exempt wages (like some fringe benefits, group-term life insurance amounts, or wages above the FUTA wage base). If you use a payroll provider or accountant, they may be able to pull a FUTA wage report directly for you, which often lines up with the entries needed on Form 940.

Step-by-Step: Completing and Filing IRS Form 940

1. Confirm that you’re required to file

Review your payroll for the year and check: Did you pay at least $1,500 in wages in any one quarter or have one or more employees in at least 20 different weeks? If yes, you typically need to file Form 940, unless you fall into an exception like certain farm or household employers.

What to expect next: Once you know you’re required, you can move on to gathering information; if you’re unsure, you can confirm with IRS Business Tax assistance or a qualified tax professional before proceeding.

2. Gather your wage and state unemployment information

Use your payroll records to total wages paid to all employees and identify which wages are subject to FUTA (generally up to the annual FUTA wage base per employee). Pull your state unemployment forms and payment records so you know the exact amount of state unemployment tax you paid by state and by quarter.

What to expect next: Having these numbers ready makes it much easier to accurately compute your FUTA tax and correctly claim the FUTA credit for state unemployment tax paid.

3. Complete Form 940 (by hand or electronically)

Fill in:

1. Basic information — EIN, business name, trade name, and address, making sure it matches IRS records.
2. Wage details — Total payments to all employees, subtracting exempt payments, and calculating total FUTA taxable wages.
3. Tax calculation — Apply the FUTA tax rate to your taxable wages, then calculate the credit for state unemployment tax paid (this is where credit reduction states matter).
4. Adjustments — Enter any adjustments if you paid state unemployment late or operate in multiple states.
5. Balance due or overpayment — Determine how much you still owe or if you overpaid.

You can complete the form using IRS-approved business e-file software or a payroll service, or manually on paper using the current-year form and instructions.

What to expect next: If you e-file, you generally receive an electronic submission acknowledgment. If filing a paper form, you typically receive no immediate confirmation but may later receive a notice if there is an issue.

4. Pay any FUTA tax you owe

If your FUTA tax liability is more than $500 for the year, you generally must have made quarterly deposits using an Electronic Federal Tax Payment System (EFTPS) or another approved deposit method. If your total liability after applying deposits is $500 or less, you can pay with the Form 940 (by electronic payment or check if allowed by current rules).

What to expect next: The IRS applies your payment to your FUTA account. If you didn’t deposit correctly or are short on payments, you may later receive a Notice of Amount Due or Notice of Penalty by mail.

5. File the form by the deadline

The due date for filing Form 940 is usually January 31 of the year after the wages were paid. If you deposited all FUTA tax on time during the year, you may have until February 10 to file. Submit Form 940 by:

• E-filing through IRS-authorized business tax software or a payroll provider, or
• Mailing a paper form to the address listed in the IRS instructions for your state and whether or not a payment is enclosed.

What to expect next: The IRS will process your return. If everything matches their records, you may not hear anything. If there are discrepancies, late filing, or missing payments, you may receive a CP notice or similar letter describing any balance due, penalties, or requested clarification.

Real-World Friction to Watch For

A common snag is mismatched wage and state unemployment information, where the totals on Form 940 differ from your state unemployment reports or the IRS sees that you claimed a credit for state unemployment tax that was paid late or not yet posted. This can trigger IRS notices, extra FUTA due, or penalties, so it helps to verify that your state unemployment payments are complete and timely before finalizing your Form 940.

If You’re Stuck: Legitimate Help and How to Use It Safely

If you’re confused by the calculations or whether you must file, several legitimate help options exist that do not require sharing information with unverified third parties.

• IRS Business & Specialty Tax line: Call the official IRS number listed on the IRS.gov site for business taxes. Have your EIN, legal business name, and recent payroll totals available and ask direct questions like, “Can you confirm whether I am required to file Form 940 based on these wage levels?”
• Local IRS Taxpayer Assistance Center (TAC): You can search for an IRS Taxpayer Assistance Center in your area and usually need to make an appointment through the official IRS phone system. These centers generally do not fill out the form for you, but they can help you understand a notice or clarify filing requirements.
• State workforce/unemployment agency: If you are unsure whether you correctly reported wages or paid enough state unemployment tax, contact your state unemployment insurance office through its official .gov portal or phone number. Ask them to confirm your wage totals and unemployment tax payments for the year.

For more hands-on help preparing the form:

• Enrolled agents, CPAs, and tax attorneys who work with small businesses can prepare Form 940 and explain how FUTA interacts with your state unemployment tax.
• Low Income Taxpayer Clinics (LITCs) and some nonprofit tax assistance programs sometimes help very small employers resolve tax controversies or understand IRS notices, though they may focus mainly on individual, not business, returns.

Because Form 940 involves taxes and identity information (EIN, business address, payroll data), be cautious:

• Look for websites and emails that end in .gov for IRS and state agencies to avoid scams.
• Be wary of anyone promising to “erase” FUTA tax or “guaranteed refund” in exchange for upfront fees or your login information.
• Never send your EIN, payroll records, or bank details through unverified links or to unsolicited callers; instead, call the number listed on the official IRS or state workforce agency website.

A practical next action you can take today is to pull your year-end payroll summary and your latest state unemployment tax statement, then compare total wages and state UI tax paid. Once you have those numbers, you can either start Form 940 yourself using current IRS instructions or contact an IRS-recognized tax professional with those documents in hand so they can prepare or review the form with you.