Form 940: How to File the Annual FUTA Tax Return
Form 940 reports federal unemployment tax once a year. Who files it, the $500 deposit rule, the return line by line, Schedule A, and penalties.
The first Form 940 I filed took forty minutes and I still got it wrong. Not the arithmetic. I put taxable wages on line 3 instead of total payments, so the figure the rest of the return subtracts from had already been reduced once. The tax came to $294. The correspondence took three months.
That is the strange thing about this return. It is the smallest employment tax filing most employers make, it happens once a year, it runs to two pages, and the balance is usually a few hundred dollars. Which is exactly why it generates notices out of all proportion to its size.
This is the filing guide rather than the tax guide: who gets pulled in, when it is due, why depositing and filing are separate obligations, what each part of the return asks for, and how to fix one you already sent. I build the people and records side at FirstHR, an onboarding platform rather than a payroll provider. General information, not tax or legal advice.
What Form 940 Is
Form 940 is the employer’s annual federal unemployment tax return. One return covers your whole calendar year and everyone you paid during it, and unlike most of your payroll calendar, it happens once.
Three things it is not. It is not a return of anything withheld from employees, because federal unemployment tax is an employer cost start to finish. It is not your state unemployment filing, which goes to a different agency on a different schedule. And it is not Form 941, which reports withheld income tax and both halves of Social Security and Medicare quarterly.
The scale gap makes this one easy to neglect. A small employer might report tens of thousands on a quarterly return and a few hundred for the entire year on this one. The filing obligation is just as firm, and so are the notices. Both returns belong on one compliance calendar.
Who Has to File It
You file for a calendar year if you meet either of two tests. You paid $1,500 or more in wages in any calendar quarter of that year or the one before it, or you had at least one employee for some part of a day in 20 or more different weeks across either year.
| Test | Threshold | Window it looks at | Where the tax is reported |
|---|---|---|---|
| General test, wages | $1,500 in any single calendar quarter | The year in question or the one before it | Form 940 |
| General test, duration | One or more employees for part of a day in 20 or more different weeks | The year in question or the one before it | Form 940 |
| Household employer | $1,000 or more in cash wages in any calendar quarter | The year in question or the one before it | Schedule H with the personal return, in most cases |
| Farm employer, wages | $20,000 or more in cash wages to farmworkers in any calendar quarter | The year in question or the one before it | Form 940 |
| Farm employer, headcount | Ten or more farmworkers for part of a day in 20 or more different weeks | The year in question or the one before it | Form 940 |
| Exempt employers | Section 501(c)(3) bodies and state and local government, plus federally recognized tribal governments that take part in their state unemployment system | Not applicable | No Form 940 required |
The duration test is the one small employers miss, because it counts weeks rather than money. The 20 weeks need not be consecutive and need not involve the same person, and a single hour on a single day makes that week count. A thin seasonal schedule can qualify on its own.
The two-year window matters as much as the thresholds. Each test looks at the current year and the one before it, so crossing a line once keeps you filing the following year too, even if you paid nobody at all. That is how a year with no payroll still produces a return.
Liability attaches at entity level and follows your federal identification number, so everyone paid under it counts. Nonprofits organized under section 501(c)(3) generally sit outside this federal tax.
State unemployment systems are a different matter. Section 3309 of the Internal Revenue Code requires states to cover most of those nonprofits once they employ four or more people in 20 different weeks, churches and some religious schools aside (26 U.S.C. 3309).
The Deadline, and the Days You Can Earn Back
Form 940 is due January 31 for the calendar year that just closed. If you deposited all of your federal unemployment tax when it was due, in full and on schedule, you may file by February 10 instead.
That extension is automatic. No request, no separate form, nothing to write on the return to claim it. It is granted on your deposit record alone, which makes it the rare tax rule that rewards behavior rather than paperwork (Internal Revenue Service, Topic 759).
Two qualifications matter. It extends filing only, so it moves no money and forgives nothing that was already late. And an employer whose tax stays at $500 or less for the whole year earns it only by depositing the balance by January 31 instead of paying with the return (26 CFR 31.6071(a)-1). Either date rolls to the next business day when it lands on a weekend or holiday.
January is also the month everything else arrives: the fourth-quarter employment tax return, the wage statements, the contractor forms. Plan the order before the month starts rather than racing through the pile.
Depositing Is Not Filing
Depositing federal unemployment tax and filing Form 940 are two obligations with two deadlines and two separate penalty regimes. You deposit during the year, quarterly, by electronic funds transfer. You file once, after the year has ended.
The deposit rule works on a running total rather than on each quarter alone. At the end of any calendar quarter, if cumulative undeposited tax exceeds $500, you deposit the whole accumulated amount by the last day of the following month. At $500 or less, nothing is due and it carries forward.
| Quarter ends | Deposit due | If the running total is $500 or less | If it is more than $500 |
|---|---|---|---|
| March 31 | April 30 | Carry the balance into the second quarter | Deposit the full accumulated amount |
| June 30 | July 31 | Carry the balance into the third quarter | Deposit the full accumulated amount |
| September 30 | October 31 | Carry the balance into the fourth quarter | Deposit the full accumulated amount |
| December 31 | January 31 | Deposit it, or pay it with the return on the payment voucher | Deposit it rather than sending it with the return |
| Quarter | Wages | Liability | Running total | What happens |
|---|---|---|---|---|
| First quarter | $40,000 of taxable wages | $240 | $240 | Under $500. Nothing to deposit. The balance rolls into the next quarter. |
| Second quarter | $46,000 of taxable wages | $276 | $516 | Over $500. Deposit the whole $516 by the last day of the month after the quarter ends. |
| Third quarter | $22,000 of taxable wages | $132 | $132 | The counter reset when you deposited. Under $500 again, so it rolls forward. |
| Fourth quarter | $12,000 of taxable wages | $72 | $204 | Still under $500 at year end, so the $204 can go with the return on the payment voucher. |
Two consequences follow. An employer whose year total never passes $500, which means about $83,000 of taxable federal unemployment wages across the year, owes no deposits during the year and can settle everything with the return. An employer who grows past that line mid-year gets no warning letter. The obligation simply begins.
The Return, Part by Part
The return has seven parts across two pages, and four of them involve arithmetic (IRS Form 940). Part 1 asks which states apply, Parts 2 through 4 build the number, Part 5 splits it into quarters, and Parts 6 and 7 handle authorization and signature.
Start above Part 1, in the type of return block. Four checkboxes: amended, successor employer, no payments to employees, and final return. Each changes how the rest of the return reads, and the final return box is what stops the IRS expecting filings from a business that has closed.
Part 2 is where the number is built, and the order is not optional. Each line feeds the next, and getting the sequence wrong produces a plausible figure that fails the moment anyone checks it against your registers.
Where the 0.006 on Line 8 Comes From
The statutory federal unemployment rate is 6 percent on the first $7,000 of wages paid to each employee in a year. Employers who pay their state unemployment contributions in full and on time claim a credit of up to 5.4 percent against it, and what remains is the 0.6 percent the return builds into line 8 (Department of Labor).
That is why the multiplier is 0.006 rather than 0.06, and why line 9 uses 0.054 in the case where no wages carried state coverage at all. The mechanics of the tax itself, including how a state rate interacts with the federal credit, sit in what FUTA tax is.
Line 9 is the all-or-nothing case where no wages carried state coverage, and the instructions are explicit that when it applies, lines 10 and 11 do not. Line 10 is the partial case, and the only place the return sends you off the page to a separate worksheet (IRS Instructions for Form 940). A return that fills line 9 together with either of the others contradicts the instructions.
Part 5 gets skipped by filers who should not skip it. It is required whenever line 12 exceeds $500, and it asks for the liability incurred in each quarter, not the deposits you made. Line 17 has to equal line 12 to the dollar, which is why the instructions have you work out the fourth quarter as the remainder.
Exempt Payments and the Wages Above the Base
Line 3 is everything you paid. Lines 4 and 5 are the two subtractions that turn it into taxable wages, and they have to run in that order: exempt payments come out first, and the excess above the wage base is then measured on what is left.
Line 4 is one total with five category boxes beside it. Fringe benefits covers employer-paid accident and health coverage and section 125 amounts. Group-term life sits alone. Retirement and pension covers the employer contribution, which is the distinction people reverse: an employee’s own elective deferral is still a taxable wage here.
Dependent care comes out within the statutory limits. The last box, other, catches the remainder, including certain family members in unincorporated businesses and workers on agricultural visas.
Line 5 is where sequencing bites. It asks for payments made to each employee in excess of $7,000, and the phrase to hold on to is each employee. Calculate it person by person, after line 4 has already been removed from that person’s figure, then sum the results. Reverse the order and the tax comes out low.
Schedule A, Multi-State Wages, and Credit Reduction
Schedule A attaches in two situations: you were required to pay state unemployment tax to more than one state, or you paid wages in a state whose federal credit was reduced. Either one on its own is enough, and the second can apply to a single-state employer.
Completing it is mechanical. Identify every state where you owed state unemployment contributions during the year. For any reduced-credit jurisdiction, enter the federal taxable wages attributable to it and multiply by the published reduction rate. The totals carry to line 11, where they increase what you owe.
What damages cash planning is that a credit reduction works retroactively. It is a property of the whole tax year, and the Department of Labor does not settle the final list until after November 10 of that year (Employment and Training Administration). It then applies to the federal taxable wages you paid in that state across all twelve months, all of it treated as incurred in the fourth quarter.
The scale is worth seeing. For the 2025 tax year the Department of Labor confirmed two jurisdictions: California at 1.2 percent and the U.S. Virgin Islands at 4.5 percent (Federal Register). On a fully paid employee that is $84 and $315 on top of the ordinary amount, for people you paid months earlier.
Never assume a rate carries forward. A jurisdiction that repays its federal loan before the November deadline drops off the list entirely, while one that does not sees the credit cut another 0.3 percent for each additional year the balance stands (Internal Revenue Service).
A separate add-on tied to the state’s unemployment benefit costs can raise the figure further unless a waiver is granted. That is why the only safe source is the determination published for the year you are filing, rather than the rate you paid the year before.
Two details catch employers with staff outside one state. The reduction follows the state whose unemployment tax covered the wages, not where the company is registered (Schedule A instructions). And the multi-state trigger is independent of the credit reduction one: two clean states still require the schedule.
Dwight SchruteSales3 people
Darryl PhilbinWarehouse1 person
Kelly KapoorCustomer Service1 personFixing a Return You Already Filed
There is no Form 940-X. You correct a Form 940 by filing another Form 940 for the same year with the amended box checked, every applicable line completed with the corrected figures, and a written explanation attached.
Use the form printed for the year being corrected rather than the current one, because the rates, the reduction list, and the line numbering all belong to that year. Restate the whole return as it should have read, not only the lines that moved. A differences-only return cannot be matched against what is posted to your account.
The explanation is not a formality. It is what keeps the amended figures from reading as a second original return. The IRS accepts an amended Form 940 through its electronic filing system with the explanation attached, and paper is still allowed. A paper amendment goes to the address for filing without a payment, which stays correct even when a payment is enclosed.
Write it as plain sentences on one page: what the original said, what is correct, how the error happened, and which lines moved. The version below keeps the line-by-line changes in a form you can hand to whoever answers the notice a year from now, and it prompts the two things people forget at the end of an amendment, which are how a balance is being paid and what happens to an overpayment.
Amending on the same form is a real difference from the quarterly return, which has its own dedicated correction form. If an amendment produces an overpayment, line 15 asks whether to apply it forward or refund it.
Refund claims are time-limited, generally three years from filing or two years from payment, whichever is later, so an old error may no longer be recoverable (26 U.S.C. 6511).
Household, Farm, and Successor Employers
Three groups file differently. Household employers generally report on Schedule H with their personal income tax return instead of Form 940, farm employers file Form 940 under their own thresholds, and successor employers get credit for what the business they acquired already did.
Household employment runs on a test of its own. Pay $1,000 or more in cash wages in any calendar quarter of the year or the one before it and you are liable (26 U.S.C. 3306), normally reporting through Schedule H attached to your personal return.
Running a business payroll as well changes the answer. An employer who already files employment tax returns for business employees may report the household wages on Form 940 instead, rather than running Schedule H alongside it.
Farm employers use two thresholds of their own: $20,000 in cash wages to farmworkers in any calendar quarter, or ten or more farmworkers for part of a day in 20 or more different weeks. The unemployment side still runs on Form 940 even though farm withholding and FICA go on a separate annual return.
Successor employers have their own checkbox at the top. Acquire substantially all of the property of a trade or business and immediately employ one or more of that predecessor’s people, and you may count wages already paid to them toward the $7,000 base rather than restarting it. Restarting is a quiet way to overpay.
What Late Filing and Late Deposits Cost
Three distinct penalties can attach to one late Form 940, and they are calculated from different bases. Failing to file, failing to pay, and failing to deposit are separate failures with separate rates, and a single episode can produce all three.
The filing penalty runs at 5 percent of unpaid tax for each month or part month the return is late, capped at 25 percent. The payment penalty is 0.5 percent of the unpaid balance per month, also capped at 25 percent. Where both apply in a month, the filing penalty is reduced by the payment penalty (26 U.S.C. 6651). Interest runs on top and is not a penalty at all.
The deposit penalty has its own ladder and does not care whether the return was perfect. It is 2 percent up to 5 days late, 5 percent for more than 5 but not more than 15 days, and 10 percent beyond that.
The top rung of that ladder, 15 percent, applies if the amount is still undeposited 10 days after the first delinquency notice, or once the IRS demands immediate payment (26 U.S.C. 6656).
| Failure | Rate | Ceiling | What it is charged on |
|---|---|---|---|
| Filing late | 5 percent per month or part month | 25 percent | The tax still unpaid at the original due date |
| Paying late | 0.5 percent per month or part month | 25 percent | The unpaid balance, running until it is settled |
| Depositing late, not more than 5 days | 2 percent | None | The deposit that should have been made |
| Depositing late, 6 to 15 days | 5 percent | None | The deposit that should have been made |
| Depositing late, more than 15 days | 10 percent | None | The deposit that should have been made |
| Still undeposited 10 days after the first IRS notice | 15 percent | None | The deposit that should have been made |
Two asymmetries are worth holding on to. A late return with nothing owed carries no filing penalty, which makes a zero-balance return feel optional even though its absence keeps the account open. And deposits are penalized separately, so a perfect return on the deadline proves nothing about the money.
Penalty relief comes in two forms. For 2025 returns onward, the IRS waives the filing, payment, and deposit penalties automatically for an employer whose three prior years were filed and paid on time, while reasonable cause relief still has to be requested (Internal Revenue Service).
The Errors That Actually Generate Notices
Form 940 correspondence often traces back to a handful of structural errors, and only one of them is a miscalculation. The rest are entries in the wrong place, a missing attachment, or a box nobody ticked.
| What went wrong | What the IRS sees | What it costs | The fix |
|---|---|---|---|
| Taxable wages entered on line 3 | Line 7 that cannot be reconciled to reported wage totals | A recalculated return and months of correspondence | Line 3 is gross. Every subtraction happens on lines 4 and 5 |
| The wage base applied to the company total | Understated taxable wages and understated tax | A balance due plus interest, sometimes years later | Cap the base employee by employee, then sum the results |
| Schedule A left off a multi-state return | Line 1b or line 2 checked with no attachment | The credit reduction is recomputed and billed | Attach the schedule whenever two states or a reduced credit apply |
| Line 9 completed alongside line 10 or line 11 | Adjustments the instructions say cannot sit on one return | The return is corrected and the credit reduced | An entry on line 9 rules out both. Line 10 is the partial case, with a worksheet |
| Deposits reported in Part 5 | A quarterly split that does not add to line 12 | An automatic mismatch and a follow-up notice | Part 5 asks for liability incurred, not money sent |
| A balance over $500 paid with the return | A required deposit that never entered the deposit system | A failure-to-deposit penalty despite full payment | Deposit anything above $500 by electronic funds transfer |
| No final return box on a closed business | An employer who stopped filing without saying so | Non-filer notices for years afterwards | Check the final return box on the last Form 940 you file |
The first row is the mistake I made on my own first return, and it is common because it looks right. Every other payroll figure you handle is a taxable figure, so entering one here feels like consistency. The return is built the other way round, starting from everything and subtracting twice.
The last row costs nothing to prevent and is easy to forget. A business that winds down without marking a final return stays on the filing roster, and the non-filer notices keep coming.
The records outlast the notices, so hold them accordingly. Keep the return, the registers behind line 3, and the deposit confirmations together for four years, which is the retention period the IRS sets for employment tax records (Internal Revenue Service).
Frequently Asked Questions
Who has to file Form 940?
Almost every employer that pays wages must file, and two tests decide it. Under the wage test, you paid $1,500 or more in wages in any one calendar quarter of the current year or the year before. Under the duration test, you had at least one employee on the payroll, even for part of a day, during 20 or more separate weeks of either of those years. Either test is enough by itself, the weeks do not have to run back to back, and they do not have to involve the same worker. Household employers use a separate test of $1,000 in cash wages in a quarter and usually file Schedule H with their own personal return. Farm employers have thresholds of $20,000 in a quarter or ten farmworkers across 20 weeks. Section 501(c)(3) organizations and state and local governments are generally outside the tax, and so are federally recognized tribal governments that take part in their state unemployment system.
When is Form 940 due?
The standard due date is January 31 after the year ends, and when that date falls on a weekend or legal holiday it slides forward to the next business day. There is a later date you can earn: employers that deposited every dollar of the tax in full and on time get until February 10. That extension is automatic, needs no request and no separate form, and rests on your deposit record rather than anything you write on the return. It is purely a filing extension: it moves no payment date, because all of the tax has to have been deposited on time for the extra days to exist. An employer that settles the year’s tax with the return rather than depositing it does not qualify and files by January 31.
Do I have to deposit FUTA tax quarterly, or can I pay it with the return?
It depends on a running total, not on your preference. Add up the federal unemployment tax you have accrued but not yet deposited. If that figure is above $500 when a calendar quarter closes, you must deposit all of it by the end of the next month, which means April 30, July 31, October 31, or January 31. If it stands at $500 or less, no deposit is due yet and the amount carries into the following quarter. An employer whose liability for the whole year never goes above $500 is never required to deposit during the year and can either deposit the balance by January 31 or pay it with the return on the payment voucher. The catch comes at the other end: when line 14 reports a balance due above $500, that money must go through the electronic deposit system instead of being enclosed with the return.
What is the difference between Form 940 and Form 941?
They report different taxes on different schedules, and only Form 941 involves money withheld from employees. Form 941 is filed every quarter and covers federal income tax withheld from pay along with the employee and employer shares of Social Security and Medicare. Form 940 is filed once a year and covers federal unemployment tax, which the employer pays alone and never deducts from a paycheck. The amounts are far apart: a small employer may report tens of thousands of dollars on a single quarterly return and only a few hundred for the full year on the annual one. Corrections differ as well. The quarterly return has its own correction form, while a Form 940 is amended by filing another Form 940.
Do I still file Form 940 if I owe nothing or had no employees?
Usually yes, and skipping it is what turns a zero-dollar year into correspondence. Once you have met a liability test, the IRS expects a return for that year and the following one, and an expected return that never arrives generates non-filer notices whether or not tax was owed. If you paid no wages at all during the year, check the box for no payments to employees, sign Part 7, and file the form as it stands. If the business has closed or permanently stopped paying wages, check the final return box instead, which tells the IRS to stop expecting filings. That box is an easy step to skip when a company winds down.
How do I correct a mistake on a Form 940 I already filed?
You correct it by filing a second Form 940 covering the same year, because there is no Form 940-X. Use the edition of the form issued for the year you are fixing, tick the amended box in the type of return section at the top right, and fill in every applicable line with the corrected figures instead of showing only what changed. Sign it and attach a written explanation of what changed and why. The amended return can go electronically with the explanation attached, or on paper to the IRS address listed for returns filed without a payment, and that address stays correct even when a payment is enclosed. If the correction leaves you with an overpayment, line 15 lets you apply it to your next return or ask for a refund.
What is Schedule A (Form 940) and who has to attach it?
Schedule A is the attachment for multi-state employers and for credit reduction, and either of two situations can require it. The first is being liable for state unemployment contributions in more than one state, which can happen as soon as one employee’s wages fall under a second state’s unemployment tax. The second is paying wages in a state or territory whose federal unemployment credit has been reduced, and that can apply even if it is the only state you operate in. On the schedule you list every state where you owed contributions. For each reduced-credit jurisdiction you take the federal taxable wages tied to it and multiply them by that jurisdiction’s published reduction rate. The total moves to line 11, and leaving the schedule off produces a recalculated balance due.
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