940 Form
The updates to the IRS Form 940 for 2023 have not been announced yet, but we have only a few weeks left. If you would like to learn more about it, this guide is for you!
Contents
The IRS 940 Form, also known as the Employer’s Annual Federal Unemployment Tax Return, allows employers to report their “FUTA“ taxes. “FUTA” stands for Federal Unemployment Tax Act.
If you are an employer who paid at least $1,500 to your employees in any quarter in the previous tax year, or if you have hired employees for more than 20 weeks in a tax year, you are obliged to fill out the 940 Form and report your taxes. Basically, this covers all employers, especially those who run a business.
It is worth noting that this employment may be part-time, full-time, temporary, or seasonal employment. Besides FUTA, employers are also charged with SUTA, which is basically the same tax charged by the states.
In other words, you have no chance but to fill out the 940 Form and report your taxes. Another important detail about the 940 Form is that it is not collected from the employee’s paychecks but from the employers. Moreover, it applies to the first $7,000, which will be paid to each employee in a tax year.
Numbers and Dates You Need To Know Before Filling Out 940 Form
As of 2022, the tax rate is set at 6% for the first $7,000. If employers pay their taxes on time, they can benefit from a 0.6% deduction. $500 is the threshold for FUTA taxes. Employers do not have to report it before it reaches $500. However, once it reaches $500, you need to pay it on time.
There are four deadlines to report these taxes. These are March 31, June 30, September 30, and December 31. Depending on the day, there may be one or two-day differences these days. Employers have to deposit their taxes no longer than April 30 for March 31, July 31 for June 30, October 31 for September 30, and January 31 for the next year for December 31.
As you may enjoy a 0.6% discount on your deposits, which must be made on time, you will be imposed penalties for late payments. This penalty increases for each delayed day. If you make your deposit late for up to 5 days, your penalty rate will be 2%.
This rate can increase to 15% if you do not pay these taxes for more than 10 days. You need to pay attention to things such as making your deposits on time, filing your Form 940 accurately, and attaching Schedule R when necessary.
If this will be your first time filing the IRS 940 Form, you may also want to know how to do so. You can choose one of the two methods as e-filing or paper filing. The IRS encourages taxpayers to file their IRS forms with e-filing so that they can enjoy quicker and better processing.
For this reason, you can work with one of the companies or software authorized by the IRS or carry out the entire process on your own. Another important detail to know is if you are a multi-state employer, you must pay the state unemployment taxes in more than one state.
All you need to do is check the box available on line 1B of Form 940 and attach Schedule A, which will help you to determine the credit reduction information. Filling out the form is also pretty straightforward. You will need to provide your basic information and the total payments you have made to your employees.
940 Form: Common Mistakes
Common errors include incorrect calculations, not using the correct year’s form, failing to pay the correct amount of tax due, and not filing on time. These mistakes can lead to a late filing penalty.
940 Form Requirements
The 940 form requires details on the employer’s business, total payments to all employees, payments exempt from FUTA tax, state unemployment contributions, and calculation of the FUTA tax liability. It is crucial to keep accurate records to meet these requirements.
940 Form Instructions
1. Who Must File Form 940?
Employers generally must file Form 940 if they paid wages of $1,500 or more to employees in any calendar quarter during the calendar year or the preceding calendar year or had one or more employees for at least some part of a day in any 20 or more different weeks in the current or preceding calendar year.
2. When To File
Form 940 is due by January 31 for the preceding year’s taxes. If you deposited all your FUTA tax when it was due, you have until February 10 to file.
3. Filling Out Form 940
- Employer Identification and Business Information: You will need to enter your Employer Identification Number (EIN), business name, and address.
- Part 1: Answer questions about your business.
- Part 2: Calculate your FUTA tax before adjustments for the year. You will input the total payments to all employees, then subtract any payments that are exempt from FUTA tax.
- Part 3: Calculate the adjustments for state unemployment tax paid.
- Part 4: Determine your FUTA tax after adjustments.
- Part 5: Calculate the FUTA tax liability by quarter. This is used to determine if you are subject to the deposit rules for the tax.
- Part 6: If your FUTA tax for any of the four quarters plus the accumulated tax for the year is more than $500, you must make a deposit by the end of the month following the end of the quarter.
- Part 7: Provide your information about your business, such as whether you sold or transferred your business.
4. Paying the FUTA Tax
You must use electronic funds transfer to make all federal tax deposits, which include FUTA tax deposits. Use the Electronic Federal Tax Payment System (EFTPS).
5. Sign and Date
The form must be signed and dated by the business owner, principal officer, trust administrator, or an authorized agent.
6. Additional Points to Consider
- SUTA Dumping: Employers should be aware of SUTA dumping, which is a practice where businesses attempt to manipulate their SUTA rates to avoid taxes. There are questions regarding this practice on the form.
- Credit Reduction States: If you are in a state that has not repaid money it borrowed from the federal government to pay unemployment benefits, you may be a credit reduction state. This means your credit against your FUTA tax will be reduced.
Always refer to the latest instructions for Form 940 provided by the IRS for the year you are filing, as there may be updates or changes to the process. If you are unsure about any aspect of your FUTA tax responsibility or how to complete Form 940, consider consulting with a tax professional or an accountant.
940 Form Deadline
As mentioned, the filing deadline for the 940 form is January 31st following the end of the tax year. If the due taxes are paid in full by the end of the year, the deadline can be extended to February 10th.
940 Form Penalties
Failure to file the 940 form on time or correctly can result in penalties. These include a percentage of the tax due for late filing and interest charges on late payments. Employers should ensure timely and accurate filings to avoid these penalties.
Comparisons and Table for Clarity
940 Form at a Glance
| Aspect | Detail |
|---|---|
| Form Type | Employer’s Annual Federal Unemployment Tax Return |
| Required for | Employers who have paid wages to employees under FUTA guidelines |
| Filing Frequency | Annually |
| Due Date | January 31 (2025) |
| Extended Deadline (if applicable) | February 10 (2025) |
| Electronic Filing | Available and encouraged |
| Paper Filing | Available |
| Late Filing Penalty | Percentage of tax due |
| Corrections | File Form 940-X |
Filing the 940 form is a critical annual task for employers to comply with federal unemployment tax obligations. By understanding the form, meeting the filing deadline, and avoiding common mistakes, employers can fulfill their responsibilities and help maintain the unemployment insurance system. Always consult with a tax professional or the IRS for the most current filing instructions.
