IRS 940 PDF Form

Detailed Instructions for Filling Out IRS 940

Filing IRS Form 940 is a necessary step for employers to report their annual Federal Unemployment Tax Act (FUTA) tax. This form is critical because it helps to fund state workforce agencies. Employers must file this form to report the amount of unemployment taxes owed for employees. The process can seem daunting at first, but breaking it down into manageable steps can simplify the task. Here’s how to successfully complete the IRS Form 940.

1. Start by gathering all necessary information, including your Employer Identification Number (EIN), the total amount paid to employees this year, and any unemployment tax amounts already paid to the state.
2. Download the current IRS Form 940 from the official IRS website to ensure you have the latest version.
3. Enter the employer's details, including the business name, address, and EIN, in the designated sections at the top of the form.
4. Fill in Part 1, calculating your total payments to all employees. Make sure to follow the instructions provided on the form for specific lines, especially if you're exempt from FUTA tax for certain types of employment.
5. In Part 2, calculate your FUTA tax before adjustments. Use Schedule A (Form 940) if you’re a multi-state employer or if you paid wages in a credit reduction state.
6. Proceed to Part 3 to adjust your FUTA tax. This involves subtracting any state unemployment tax payments you’ve made from your total FUTA tax. If applicable, add credit reduction.
7. In Part 4, if necessary, calculate your FUTA tax liability for each quarter. This is required if you owe more than $500 in FUTA tax for the year.
8. Fill out Part 5 to report any additional information required, such as changes in ownership or business structure.
9. Review your completed form to ensure all information is accurate and complete. Double-check your calculations to avoid any errors.
10. Sign and date the form. If you had someone prepare the form for you, ensure that the preparer’s information is also included.
11. Mail your completed IRS Form 940 to the appropriate address, which you can find on the IRS website. If you’re making a payment with the form, ensure to use the correct address for submissions with payments.

Once you've mailed your form, you've completed your duty for filing the IRS Form 940 for the year. Remember, it's important to keep a copy of the form and any related documents for your records. Staying organized and informed about your tax obligations is essential for smooth business operations. If you have any uncertainties or need clarification, consulting a tax professional or the IRS directly can provide guidance tailored to your specific situation.

1. What is an IRS 940 form?

   The IRS 940 form, also known as the Federal Unemployment Tax Act (FUTA) tax return, is a document that employers must file annually. It reports the amount of federal unemployment taxes that the employer has paid on behalf of their employees. FUTA tax, along with state unemployment systems, funds unemployment compensation paid to workers who have lost their jobs.

2. Who needs to file the IRS 940 form?

   Most employers need to file the IRS 940 form if they paid wages of $1,500 or more in any quarter of the calendar year or if they had one or more employees for at least some part of a day in any 20 or more different weeks in the year. Different rules may apply for agricultural, household, and non-profit employers, which can be checked directly with the IRS.

3. When is the IRS 940 form due?

   The deadline for filing the IRS 940 form is January 31st of the year following the reported year. However, if all FUTA tax was deposited when due, the deadline can be extended to February 10th. Employers are advised to check for any updates or changes to the filing deadline on the IRS website or consult a tax professional.

4. How can an employer calculate the FUTA tax?

   FUTA tax is calculated at a percentage of the first $7,000 paid to each employee as wages during the year. As of the current guidelines, the FUTA tax rate is 6.0%, but employers may receive a credit of up to 5.4% for state unemployment taxes paid, effectively lowering the FUTA tax rate to 0.6% on these wages. It's important to note that any changes to these rates are announced by the IRS, and employers should check for the latest information.

5. What are common mistakes to avoid when filling out the IRS 940 form?

   • Not filing on time, which can result in penalties and interest charges.
   • Failing to accurately calculate the FUTA tax due. This includes not accounting for the state unemployment tax credit or misreporting wages.
   • Forgetting to sign the form, rendering it invalid. A signed form is critical for the IRS to process it.
   • Omitting essential information such as the Employer Identification Number (EIN) or not reporting all applicable wages paid to employees.

   Employers should double-check their forms for these common errors and consider consulting with a tax professional to ensure accurate and timely filing.

One common mistake individuals make when filling out the IRS 940 form is not including all wages paid throughout the year. This form, designed to report annual Federal Unemployment Tax Act (FUTA) tax, requires employers to list total wages. However, sometimes, people overlook or mistakenly exclude certain payments, such as bonuses or commissions. This oversight can result in inaccurate tax calculations and potential penalties for underreporting wages.

Another error occurs when people fail to apply the correct FUTA tax rate. The standard FUTA tax rate is 6.0% on the first $7,000 paid to each employee annually. Employers can claim a credit of up to 5.4% for state unemployment taxes paid, but only if these payments were made in full and on time. If individuals do not accurately apply this tax rate and credit, it can lead to either an overpayment or underpayment of the tax owed.

A third mistake is inaccurately calculating the FUTA tax due after adjustments. The IRS 940 form requires employers to adjust their FUTA tax liability for special situations, such as exempt wages or credits for state unemployment contributions. Misunderstanding these adjustments leads to incorrect tax amounts being reported. Particularly, failing to account for state unemployment contributions accurately can result in an overestimation or underestimation of the tax obligation.

Lastly, failure to list each state where employees worked is a significant mistake. The form requires employers to detail in which states their employees performed work because state unemployment contributions affect the calculation of the FUTA tax credit. Neglecting to include every state, or incorrectly listing states where no work was performed, can impact the calculation of the credit and, by extension, the total tax due. This error is especially common among businesses that operate or have employees in multiple states.

The IRS Form 940 is an essential document for employers as it relates to federal unemployment tax. However, it's not the only form that businesses need to manage their taxes and employee paperwork efficiently. To ensure full compliance with the tax laws, several other forms and documents often accompany the IRS 940. Each serves a distinct purpose in the broader context of payroll and taxation requirements.

• IRS Form W-2: This form reports an employee's annual wages and the amount of taxes withheld from their paycheck. Employers must send out Form W-2 to employees and file a copy with the Social Security Administration annually.
• IRS Form W-3: Accompanies Form W-2 submissions to the Social Security Administration. It summarizes the total earnings, Social Security wages, Medicare wages, and withholding for all employees for the previous year.
• IRS Form W-4: Used by employees to indicate their tax situations to employers, such as the number of exemptions or allowances claimed, enabling the employer to withhold the correct federal income tax from their pay.
• IRS Form 941: Employers use this form quarterly to report income taxes, Social Security tax, or Medicare tax withheld from employees' paychecks and to pay the employer's portion of Social Security or Medicare tax.
• IRS Form 944: Designed for smaller employers to use once a year to report any federal income tax withheld and both the employee's and employer's share of Social Security and Medicare taxes.
• IRS Form 1099: This document is for reporting income made by freelancers or independent contractors rather than traditional employees, indicating the nonemployee compensation.
• IRS Form 1096: A summary or transmittal form that must accompany certain types of 1099 forms sent to the IRS. It summarizes all 1099 forms sent by one employer.
• Schedule R (Form 940): Used by employers to allocate aggregate Form 940 wages and taxes among multiple entities, typically for aggregated employment tax filers.
• IRS Form 8850: Pre-Screening Notice and Certification Request for the Work Opportunity Tax Credit. Employers fill out this form before hiring a new employee to potentially qualify for a tax credit.
• State Unemployment Tax Forms: While the IRS 940 deals with federal unemployment tax, employers also need to manage and file state-specific unemployment tax forms, which vary depending on the employer's location.

Together, these documents form the backbone of a comprehensive tax and payroll reporting framework for employers. Managing these forms properly ensures compliance with federal and state tax laws, contributing to the smooth operation of any business.

• IRS Form 941, Employer's Quarterly Federal Tax Return: This document is closely related to the IRS 940 Form, as both pertain to employer tax obligations. While the 940 Form is an annual report paying unemployment taxes to the federal government, the 941 Form is submitted quarterly and reports on the withheld income tax, and the employer's and employees' share of Social Security and Medicare taxes. The similarity lies in their purpose of reporting employer tax liabilities and payments.

• IRS Form 944, Employer's Annual Federal Tax Return: Designed for smaller employers to report their federal tax obligations annually, Form 944 shares its core purpose with the 940 Form. Both forms allow for annual reporting, but they cover different types of taxes: Form 940 focuses on unemployment taxes, whereas Form 944 is for reporting income tax, Social Security, and Medicare taxes withheld from employees' wages.

• IRS Form W-2, Wage and Tax Statement: This form, which employers must send to employees and the Social Security Administration annually, reports an employee's annual wages and the amount of taxes withheld from their paycheck. The connection to Form 940 is indirect; the information on W-2 forms helps determine the total payroll expenses, which is necessary for calculating unemployment tax obligations reported on Form 940.

• IRS Form W-3, Transmittal of Wage and Tax Statements: This document accompanies Form W-2 when submitted to the Social Security Administration. It summarizes the total earnings, Social Security wages, Medicare wages, and withholding for all employees for a given year. While W-3 itself does not report taxes akin to Form 940, it plays a pivotal role in confirming the accuracy of the payroll data, which affects unemployment tax calculations on the 940 Form.

Filing your IRS 940 form, which is used to report your annual Federal Unemployment Tax Act (FUTA) tax, is an important task that demands accuracy and attention to detail. Below are several do's and don'ts to keep in mind when preparing to fill out this form. These guidelines aim to help you navigate the process smoothly and avoid common pitfalls.

1. Verify your Employer Identification Number (EIN): Make sure it's correct and clearly written on the form. This number is crucial for your business's identification.
2. Review the form instructions: Before filling out the form, thoroughly read the IRS instructions. These can provide valuable guidance and updates on tax rates or other changes.
3. Report all states where you have employees: Include all states where your employees work, as state unemployment contributions can affect your FUTA tax liability.
4. Calculate your FUTA tax correctly: Ensure you accurately calculate your tax, considering current tax rates and the $7,000 wage base per employee.
5. Check for common errors: Before submitting, review your form for common mistakes, such as mathematical errors or incorrect employer information.
6. Pay any due tax electronically: If you owe tax, the IRS prefers (and sometimes requires) electronic payment through the Electronic Federal Tax Payment System (EFTPS).
7. Keep a copy for your records: After filing, retain a copy of the form and any related documents for at least four years, as required by the IRS.
8. File before the deadline: Ensure you file the form by the deadline (January 31) to avoid penalties and interest.
9. Use the correct form version: Always use the latest version of IRS Form 940, as it may be updated with new information or requirements.
10. Consider professional advice if needed: If you're unsure about anything, consulting with a tax professional can help you avoid mistakes and ensure your form is filled out correctly.

• Don't forget to sign and date the form: An unsigned form is considered not filed, which could lead to penalties.
• Don't overlook the FUTA credit reduction states: If you paid wages in states subject to FUTA credit reduction, make sure to account for the additional tax owed on the form.
• Don't miss including all wages paid: All wages up to the $7,000 threshold per employee should be reported, even for part-time or temporary employees.
• Don't use white-out or make alterations: If you make a mistake, it's better to start a new form than try to alter the filed one, as these corrections can lead to processing errors.
• Don't neglect to report any changes in your business status: Changes, such as purchasing another company or ending your business, can affect your FUTA tax responsibilities and should be reported accurately.
• Don't submit the form without checking your math: Errors in calculations can delay processing and may result in under or overpayment of your taxes.
• Don't ignore notices from the IRS: If you receive a notice regarding your Form 940, address it promptly to avoid further issues.
• Don't forget to update your contact information: If your address or other contact information has changed, make sure to update it with the IRS to ensure you receive all correspondence.
• Don't underestimate the importance of timely filing: Late filing can lead to penalties, so always aim to submit your form well before the deadline.
• Don't assume year-to-year numbers are the same: Always verify all amounts, as tax rates, wage bases, and other factors can change from one year to the next.

The IRS 940 form, officially known as the Federal Unemployment Tax Act (FUTA) Tax Return, is crucial for employers, but it's often misunderstood. Let's clarify some common misconceptions to ensure accuracy and compliance.

• Only large businesses need to file it: Many people think the IRS 940 form is only for large businesses. However, it applies to any employer who paid wages of $1,500 or more in any calendar quarter, or had one or more employees for at least some part of a day in any 20 or more different weeks in a year.
• It's filed for each employee: Unlike forms that are filed for each employee, the IRS 940 is submitted per employer, not per employee. It aggregates the total unemployment taxes the employer owes for all employees.
• I can file it anytime during the year: The filing deadline for the IRS 940 form is January 31st following the end of the tax year. Extensions may be available, but this fixed deadline is crucial to remember.
• All unemployment taxes are reported on the 940: The IRS 940 form specifically deals with federal unemployment taxes. State unemployment taxes are reported separately and are not included on this form.
• If my business didn’t pay wages that quarter, I don’t need to file: Even if no wages were paid during a quarter, if the business filed the form in the previous year and hasn't closed or stopped paying wages, it still needs to file the form indicating no payment.
• Paying unemployment taxes means I don’t need the IRS 940: Even if an employer pays their state unemployment taxes in full and on time, they still need to file IRS Form 940. This form calculates the federal unemployment tax liability and credits the employer for state unemployment taxes paid.

Understanding the specifics of IRS 940 can help employers avoid penalties and ensure they're meeting all federal requirements for unemployment tax reporting. Clearing up these misunderstandings is the first step toward compliance.

• Understanding the Purpose: The IRS 940 form, officially known as the Employer's Annual Federal Unemployment (FUTA) Tax Return, is designed to report the amount of unemployment taxes that employers must pay. These taxes provide funds for paying unemployment compensation to workers who have lost their jobs.

• Determining Eligibility: Not all businesses are required to file a 940 form. Only employers who pay wages of $1,500 or more in any calendar quarter or have at least one employee for a portion of a day in any 20 or more different weeks in the year need to file.

• Filing Deadline: The IRS sets the deadline for filing Form 940 annually on January 31st. If all FUTA tax was deposited when due, the deadline may extend to February 10th. Late filings can result in penalties and interest charges.

• Calculating FUTA Tax: The FUTA tax rate is 6.0% of the first $7,000 paid to each employee annually. Employers who pay state unemployment taxes in full and on time may receive a credit of up to 5.4%, reducing the effective Federal unemployment tax rate to 0.6%.

• Credit Reduction States: Some states borrow funds from the federal government to cover state unemployment benefits and fail to repay the loans within the allotted time. Employers in these "credit reduction states" may not be eligible for the full credit and are required to pay additional federal unemployment tax.

• Completing and Filing the Form: Employers should accurately calculate the total amount of FUTA tax liability and report any payments made throughout the year. Form 940 can be filed electronically or mailed to the IRS. Using electronic filing methods is encouraged for its ease and faster processing time.