The IRS Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, is used to report FUTA taxes to the IRS. Employers must submit Form 940 to the IRS every year to report the FUTA tax.
According to the IRS, employers in the following categories must file Form 940:
- Employers who paid workers $1500 or more in any quarter of the current or previous tax year
- If you recruit workers for 20 weeks in the financial year.
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What is the difference between Form 940 and Form 941?
Form 940 and Form 941 are associated with employer tax reporting, but each delivers distinct purposes.
| Form 940 | Form 941 |
| Form 940 is required to report and pay the Federal Unemployment Tax, often known as the FUTA tax. This tax pays unemployment benefits for workers who have lost their jobs. | Form 941 is used to record employment taxes for employees, which include federal income tax withholding, Social Security tax, and Medicare tax. Additionally, it covers the employer’s share of these taxes. |
| The 940 filing is done once a year and summarizes the total amount of FUTA tax due for the whole year. | To report the tax liabilities for each quarter, employers must submit Form 941 on a quarterly basis (i.e. four times a year). |
What are the exceptions to submitting 940 Forms?
The filing of Form 940 may be impacted by a number of unique situations, some of which include:
- For Employers of Household Employees:
If you’re a household employer, you must pay FUTA tax on wages that you paid to your household employees only if you paid cash wages of $1,000 or more in any calendar quarter in 2022 or 2023. If you also have additional employees, you can include household employee FUTA taxes on Form 940.
- For Agricultural Employers
Employers in the agricultural sector who paid cash wages of $20,000 or more to farmworkers in any calendar quarter of 2022 or 2023 or who employed 10 or more farmworkers for at least 20 weeks are required to file Form 940. Payroll for “H-2A visa workers” is exempt from FUTA tax.
- For Indian Tribal Governments
Employees of a federally recognized Indian tribal government employer are exempt from FUTA tax if the tribe participates in the state unemployment system for the entire year.
- Employers in State or Local Government
Employees of the state, political subdivisions, or instrumentalities of the state are exempt from FUTA taxes; no Form 940 is required.
What is a Credit Reduction State?
A credit reduction state is where the state government has borrowed money from the federal government to fund their unemployment benefits but hasn’t paid it back within the allowed timeframe. When this happens, employers in that state will owe more in taxes.
The FUTA tax is a federal tax on employers under a state’s unemployment insurance program. Normally, the FUTA tax rate is 6.0% on the first $7,000 of wages. Employers usually get a 5.4% credit when they file Form 940, resulting in a net tax rate of 0.6%.
However, some states borrow money from the federal government if they can’t cover their residents’ unemployment benefits. If a state doesn’t pay back its loan within two years, the FUTA credit rate for employers in that state gets reduced. It starts with a 0.3% reduction for the first and second year and increases by 0.3% each year until the loan is fully repaid. The Department of Labor manages this program and announces these credit reduction states each year after November 10.
What are the IRS changes to Form 940 for 2023?
The IRS has issued changes on Form 940 for Tax Year 2023. These are the updated credit reduction states and their rates for the 2023 tax year:
CA, CT, IL, NY – 0.6%
US VI – 3.6%
| States | 2022 | 2023 |
| California (CA) | 0.3% | 0.6% |
| Connecticut (CT) | 0.3% | 0.6% |
| Illinois (IL) | 0.3% | 0.6% |
| New York (NY) | 0.3% | 0.6% |
| U.S. Virgin Islands (VI) | 3.6% | 3.6% |
What is the Due Date of Form 940
Paper filers and eFilers must file form 940 to the IRS by January 31, 2024. However, if you deposited all your FUTA tax when it was due, you may file Form 940 by February 10, 2024.
| Filing Type | Due Date |
| IRS eFile | Jan 31, 2024 |
| IRS eFile(If Taxes are already paid) | Feb 10, 2024 |
