IRS Form 940 Unemployment Tax Report Explained

Form 940 - Who Must File, Due Date, Where to File

Form 940 Due Date and Unemployment Tax Due Dates
Due Dates for Form 940 and Unemployment Taxes. Alex Slobodkin/Getty images

Have you forgotten about unemployment taxes? Unemployment taxes are paid by employers to fund federal and state unemployment tax funds, which provide payments to employees who have been terminated or laid off from their employment.

If you have employees, you must report and pay unemployment taxes. You don't have to deduct these employment taxes from employee pay, but you must set aside amounts for this tax and report it on Form 940.

 

What is IRS Form 940? 

IRS Form 940 is the federal unemployment tax annual report form. The form first calculates the employer's federal unemployment tax liability, then adjusts for any state unemployment taxes paid, then calculates the unemployment tax due. Finally, the form compares unemployment tax due for the year to the tax already paid. Your business must pay the underpaid tax.

What is the Unemployment Tax Rate? 

Unemployment tax payments are based on employee wages and salaries, up to a maximum of $7000 of wages per year per employee, at a rate of 0.6 percent. (The rate is 6%, but 5.4% is deducted if state unemployment taxes are paid. 

Who Must File Form 940?

Your business must file Form 940 if:

  • You paid wages of $1,500 or more to employees in a calendar quarter of the year
  • You had one or more employees for at least some part of a day in any 20 or more different weeks in either of the past two years. Employers must count all full-time, part-time, and temporary employees, but not owners or partners. 

    When is Form 940 Due? 

    The due date for Form 940 is January 31, for the previous year. However, the IRS says that if you deposited all of the FUTA tax when due, you have 10 additional calendar days to file. If January 31 is a weekend or holiday, the Form 940 due date is the next business day. 

    How Do I Make Payments for Form 940 Taxes? 

    In addition to the annual FUTA report on Form 940, you must also make payments on unemployment taxes, either annually or quarterly, depending on the amount owed.

     

    To make federal unemployment tax payments, you must use the Electronic Federal Tax Payment System (EFTPS) system. You cannot mail these payments to the IRS; you can no longer use tax coupon 8106 for these payments. 

    How Do I Complete Form 940?

    IRS Form 940 is used to compute the amount of federal unemployment tax liability of a business from the previous year. The form also is used to determine the amount of unemployment tax owed for the previous year, and any unpaid and due unemployment taxes. 

    The process of completing Form 940 includes: 

    • Calculating the total amount of payroll (the gross pay) for all employees for the year in question
    • Then subtracting payments not included in unemployment tax liability (fringe benefits, for example)
    • Subtracting employee payments in excess of $7000 for the year, and 
    • Finally, the federal unemployment tax is calculated based on these totals. The calculation is the total of all unemployment-taxable wages times the rate. 

    Read more details about how federal unemployment tax liability is calculated on Form 940. 

    How Do I File Form 940?

    You can e-file Form 940 with the IRS in several ways:, depending on whether or not you are making a payment. You can also mail this form to the IRS.

    The IRS instructions for Form 940 for a list of states and addresses for filing Form 940. 

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