What is IRS Form 940?

IRS Form 940 is the Employer’s Annual Federal Unemployment (FUTA) 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 businesses using Homebase payroll, understanding and filing Form 940 ensures IRS compliance and helps prevent costly tax penalties.

Who needs to file Form 940?

Employers must file Form 940 if they:

• 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.

Note: 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%.

With Homebase payroll, businesses can automate FUTA tax calculations and ensure correct filings, minimizing the risk of IRS penalties.

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:

1. Gather payroll records – Total wages paid and unemployment tax contributions.
2. Complete Form 940 – Report total wages, exemptions, and state unemployment tax credits.
3. Submit FUTA tax payments – Use the Electronic Federal Tax Payment System (EFTPS) if FUTA tax is over $500.
4. File Form 940 with the IRS – E-file for faster processing or mail a paper return.

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.

Employers should use Homebase payroll to avoid errors and ensure timely tax payments.

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

Try Homebase today to simplify your payroll and tax compliance processes. Sign up now for automated Form 940 filing and unemployment tax management.

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