Form 940: Purpose, Instructions and Filling Out

When FUTA is being used in a company, form 940 needs to be used and filed. There are many 940 form generators online where you can take a template and fill in the information needed. The templates and algorithms will do all the calculations for you making it very easy to use form 940. 

The 940 forms will be able to report the employee’s compensation in the event they have lost their jobs. It’s also used in conjunction with state and federal unemployment taxes. 

Unemployment tax forms might seem complicated, but there are many online generators that can be used to make the forms. 

What Is A 940 Form?  

Unemployment taxes are usually paid by the state government, but there are cases where the federal government steps in and pays for things as well. When the Federal Unemployment Tax Act was put into place, IRS form 940 was created. 

Form 940 is used by employers to report their yearly payment of federal unemployment taxes to the IRS. This tax, along with state unemployment taxes, funds unemployment benefits for workers who have lost their jobs. Only employers are responsible for paying FUTA tax, and it should not be deducted from employees' wages.

Need to Know: Form 941

What is the FUTA Tax?

FUTA taxes are 6% of the first $7000 that was paid in employees' wages during the year. The $7000 is the FUTA wage base. The taxes your company pays for FUTA will be able to help your employees later on as the federal government uses these funds to pay for unemployment wages. 

Who Must File Form 940?

Generally, you must file Form 940 if in previous year

• You paid $1,500 or more in wages to employees in any quarter, or
• You had one or more employees for at least some part of a day in 20 or more different weeks.

Form 940 Exceptions

There are some exceptions to this rule:

• Household Employers: You must file if you paid $1,000 or more in cash wages per quarter to household employees. You can usually file Schedule H (Form 1040) instead of Form 940.
• Agricultural Employers: You must file if you paid $20,000 or more in cash wages per quarter to farmworkers or employed 10 or more farmworkers for 20 or more weeks.
• Indian Tribal Governments: Exempt if they participated in the state unemployment system and complied with state law.
• Tax-Exempt Organizations: Generally exempt, but may have to file if paying wages on behalf of a non-exempt organization.
• State or Local Government Employers: Exempt.

 

How to Fill a 940 Form?

If you have never filled out a 940 form, you might be confused about the details. Here is some more information about each of the steps so you can be sure you filled out your form correctly. 

Complete employer information 

Here you will enter your Employer Identification Number. You might also need to enter a DBA if you are doing business as a DBA. 

Keep in mind you have to use a business number or employer identification number here. Your personal Social Security Number should not be entered on this line. You can also use a TIN (Taxpayer Identification Number). 

Enter state unemployment details 

• Part one of the form is all about the state unemployment information that you need to submit. In line 1a you will enter the state abbreviation if you are paying state unemployment in only one state. 
• Line 1b is if you paid state unemployment in more than one state which is when you need to mention that you are a multi-state employer. 
• Line 2 will only be checked if you paid employee wages in states where there is a FUTA tax credit reduction. 

 

More information about the states is listed on the forms to help you determine if you need to check them or not. 

Determine pre-adjustment FUTA tax amounts 

This is where part 2 of the form starts. There are 8 lines you need to go over and fill out where noted. Here are some guidelines to help you out:

• Line 3 is for the total payments you made to all your employees. This should include wages that are not subject to FUTA tax. They should include everything from pensions to retirement to fringe benefits. 
• Line 4 is the total of the payments that are exempt from FUTA. Check the boxes that apply to you and then write in the total of each of the payments next to the checked box. 
• Line 5 is the total amount of payments you made to employees that were over $7000. You will also need to list the total amount over the wage base once you have subtracted the wages that are exempt from line 4. 
• Line 6 is where you will add the amounts from lines 4 and 5 and then enter the total amount. 
• One Line 7 you will subtract line 6 from line 3 and enter the total. This will be the total taxable FUTA wages. 
• You can then multiply the amount listed on line 6 by .006 to see the amount of FUTA tax you will pay before adjustments. You can enter this number on line 8. 

Calculate & Determine FUTA tax adjustments 

For this part of the form, you might not have to fill in every line. Only write in the ones that apply to you. 

• In line 9 you will only fill it in if all your taxable FUTA wages were excluded from the state unemployment tax. 
• Line 10 will be filled in if only some of the taxable FUTA wages are excluded from the state unemployment tax or if you paid unemployment taxes late. 
• Line 11 is only for those to whom the FUTA credit reduction applies. 

Report quarterly FUTA tax liabilities 

You only need to do this part of the form if the amount you entered in Line 12 on part 4 is more than $500. Otherwise, you can ignore this part of the form completely. 

One line 16, you will write the amount of the FUTA tax liability for each quarter. On line 17, you will add lines 16a through 16d. This shows your total tax liability amount. 

Choose a spokesperson for IRS 

Here you will choose a person to speak to the IRS about this form in the event that someone contacts you needing more information. You will enter the person’s name and phone number. You also need to make a 5-digit PIN that the person will say to confirm their identity when speaking on the phone. 

Sign the form 

The last part is signing and dating the form. Make sure you also leave your phone number in case someone needs to contact you. 

Benefits Of A 940 Form 

There are many benefits to filing a 940 form. The main one is that it gives information about your employee’s wages for the previous year. It allows your employees to be eligible for receiving unemployment money from the federal government when unemployment rates are high. 

Filing a 940 form is required and it needs to have all the correct information. It also needs to be submitted by the due date. To make things easier, you can get a template online and then file the form electronically. 

When To Deposit Your FUTA Tax

If your undeposited FUTA tax is more than $500 on	Deposit your tax by
March 31	April 30
June 30	July 31
September 30	October 31
December 31	January 31

 

940 Form Generator 

We know that filling in form 940, especially for the first time can be complicated since there are so many lines and information that is needed. Therefore, using a paid or free 940 Form generator will help you.

It will ask you about the information needed and do the calculations for you to make your life easier.