Form 940: Employer’s Annual FUTA Tax Return

IRS Form 940, officially called the Employer’s Annual Federal Unemployment (FUTA) Tax Return, is used by businesses to report and pay unemployment taxes at the federal level. These taxes fund unemployment compensation programs for workers who lose their jobs. Unlike income tax or Social Security contributions, FUTA tax is paid entirely by the employer, not by employees.

What is IRS Form 940?

Form 940 is required for most employers who pay wages subject to federal unemployment tax. The FUTA rate is set by the IRS, but credits may apply if you also pay state unemployment taxes, lowering the effective tax rate. Filing is annual, but deposits may be required quarterly if your FUTA liability exceeds certain thresholds.

Who Needs to File Form 940?

Employers who paid at least $1,500 in wages during any quarter of the year.
Employers who had at least one employee for at least 20 weeks in a calendar year.
Household employers and agricultural employers may have separate rules.

Form 940 vs. Form 941

A common source of confusion is the difference between Form 940 and Form 941:

Form 940: Reports FUTA (unemployment) taxes, filed annually.
Form 941: Reports federal income tax withheld and Social Security/Medicare (FICA) taxes, filed quarterly.

When to File Form 940

Form 940 is due by January 31 each year, covering the prior calendar year. Employers who have already deposited all FUTA taxes on time may have until February 10 to file. Penalties may apply for late filing or underpayment.

How to File Form 940

You can file Form 940 in two ways:

Electronically: Through the IRS e-file system or an approved provider.
Paper filing: Mailing the completed form to the appropriate IRS address, depending on your state.

Key Information Included on Form 940

Total payments to employees.
Payments exempt from FUTA tax (e.g., fringe benefits, retirement contributions).
FUTA taxable wages.
Adjustments for state unemployment tax credits.
Total FUTA tax owed and deposits already made.

Penalties and Compliance

Failing to file Form 940 or pay FUTA taxes on time can result in IRS penalties and interest. Employers should keep accurate payroll records and reconcile payments to avoid issues.

Why Form 940 Matters

Unemployment insurance is a critical safety net for workers. By filing Form 940, employers contribute to this system while staying compliant with federal tax laws. Proper reporting also ensures businesses can avoid costly fines and audits.

Form 940 vs. Form 941 (Quick Comparison)

Both forms relate to U.S. payroll taxes, but they report different taxes on different schedules. Use this guide to decide which one you need and when.

Form 940 — Employer’s Annual FUTA Tax Return

What it reports: Federal Unemployment Tax Act (FUTA) tax.
Who files: Most employers who paid $1,500+ in wages in any quarter, or had one or more employees in at least 20 weeks during the year.
Frequency: Annually.
Due date: January 31 (Feb 10 if all FUTA deposits were made on time).
Who pays: Employer-only tax (not withheld from employees).
Deposits: Quarterly deposits required if your FUTA liability exceeds IRS thresholds.
State credit: FUTA may be reduced by credits for state unemployment taxes; credit reductions may apply to some states.
Common uses: Annual reconciliation of FUTA wages, taxable wages, credits, and total FUTA due.

Form 941 — Employer’s Quarterly Federal Tax Return

What it reports: Federal income tax withheld from employees’ pay, plus employer and employee shares of Social Security and Medicare (FICA).
Who files: Most employers paying wages subject to federal income tax, Social Security, or Medicare.
Frequency: Quarterly.
Due dates: Apr 30, Jul 31, Oct 31, Jan 31 (for the prior quarter).
Who pays: Employee withholdings and employer FICA contributions.
Deposits: Semiweekly or monthly payroll tax deposits based on your IRS deposit schedule.
Adjustments/credits: Tips, sick pay, group-term life, and certain credits (when applicable).
Common uses: Quarterly reconciliation of wages, withholdings, and FICA taxes.

Which do I file?

Have employees? You typically file both Form 941 (quarterly) and Form 940 (annually).
No employees / no wages? You may not need 941 for that quarter; 940 applies only if you meet FUTA thresholds.
Household/agricultural employers: Special rules may apply—check the IRS instructions.

Common mistakes to avoid

Confusing FUTA (Form 940) with FICA/withholding (Form 941).
Missing deposit schedules (941) or FUTA quarterly deposit triggers (940).
Forgetting state unemployment credit reductions that affect FUTA on Form 940.
Failing to reconcile quarterly 941 totals with year-end W-2/W-3.

Simple example

Quarterly: You run payroll, withhold federal income tax and employee FICA, add employer FICA, deposit taxes per your schedule, and file Form 941 at quarter-end.
Annually: You total FUTA wages, apply state unemployment credits, deposit any remaining FUTA, and file Form 940 by January 31.