IRS form 940
IRS Form 940 is the Employer’s Annual Federal Unemployment Tax Return, which businesses use to report and pay federal unemployment taxes.
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Contents8 sections
What is IRS Form 940?
IRS Form 940 is the Employer’s Annual Federal Unemployment Tax Return, which businesses use to report and pay federal unemployment taxes. The Federal Unemployment Tax Act (FUTA) helps fund state unemployment programs that benefit unemployed workers.
For small business owners, it’s important to understand and use IRS Form 940 properly so that you avoid costly penalties, interest, or audits due to filing errors or missed deadlines. This way, your business can remain compliant with federal employment tax laws, protecting your financial and legal standing.
Who needs to file Form 940?
Employers must file Form 940 if they have either:
- Paid at least $1,500 in wages to employees in a calendar quarter
- Had one or more employees (full-time, part-time, or temporary) work for at least 20 weeks during the year.
Businesses hiring only independent contractors are not required to file Form 940 since contractors handle their own taxes.
How does FUTA tax work?
FUTA tax applies as follows:
- Tax rate: 6.0% on the first $7,000 of each employee’s wages.
- Maximum tax per employee: $420 annually ($7,000 × 6.0%).
- Tax credit: Employers who pay state unemployment taxes on time may receive up to a 5.4% credit, reducing the FUTA tax rate to 0.6%.
You can find more detail through the IRS Form 940 Instructions, including any special instructions or exceptions.
When is Form 940 due?
Form 940 is typically due by January 31 of the following year. However, if all FUTA taxes are paid on time, the IRS extends the deadline to February 10.
How to file Form 940
Employers can file Form 940 electronically or by mail. The process includes:
- Gather payroll records: Total wages paid and unemployment tax contributions.
- Complete Form 940: Report total wages, exemptions, and state unemployment tax credits.
- Submit FUTA tax payments: Use the Electronic Federal Tax Payment System (EFTPS) if FUTA tax is over $500.
- File Form 940 with the IRS: E-file for faster processing or mail a paper return.
Small business payroll software can be a great tool for ensuring that forms are filed accurately and in a timely manner.
What happens if a business doesn’t file Form 940?
Failing to file Form 940 or pay FUTA taxes on time can result in:
- Late filing penalties: Up to 5% per month of unpaid tax.
- Late payment penalties: 0.5% per month on the unpaid balance.
- Loss of FUTA tax credits: If state unemployment taxes are not paid on time.
How Homebase helps businesses with Form 940 compliance
Tracking FUTA taxes manually can be a hassle. Homebase payroll makes it simple by:
- Automatically calculating and tracking FUTA tax liability
- Ensuring timely filing of Form 940 and other payroll tax forms
- Maintaining compliance with IRS and state unemployment tax laws
- Providing easy-to-read payroll reports to streamline tax season preparation
Sign up for Homebase today to simplify your payroll and tax compliance processes. We can support you with automated Form 940 filing and unemployment tax management, so you can focus your time on growing your business
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