What is Form 940 and how do I file it?

The 940 form, officially known as the "Employer's Annual Federal Unemployment (FUTA) Tax Return," is a tax form used by employers in the United States to report annual Federal Unemployment Tax Act (FUTA) tax. FUTA tax provides funds for paying unemployment compensation to workers who have lost their jobs. Employers are responsible for paying FUTA tax; it is not deducted from employees' wages.

Most US companies track this information alongside their other payroll information through their payroll software. For example, software like ezPaycheck can allow companies to file 941 , W-2 and W-3 forms from the same information necessary to generate 940 forms.

What is Form 940 used for?

Under the Federal Unemployment Tax Act (FUTA), the federal government provides a fund for states to meet their unemployment benefits obligations. Form 940 is used to report an employer's tax burden on an annual basis to the IRS.

This payroll tax is based on the first $7,000 of wages of each employee, including S corporations that recieve salart for the work done by their businesses. If your company has employees in more than one state, it may need to complete a Schedule A of Form 940 to see if they qualify for a credit reduction for wages.

Do I need to file a 940?

Businesses must file Form 940 if they pay at least $1,500 in wages to any W-2 employee OR has one employee for at least 20 or more weeks of the year.

Form 940 is very similar to form 941, which is described in more detail here .

How much do I owe?

For 2024 (and also the last few years), the IRS requires employers to pay 6% on the first $7,000 paid to each employee for each employee you had this year.

However, most employers will not be paying the fill 6%. As most employers are also resonsible for paying state unemployment tax (SUTA), most companies qualify for reductions to a maximum of 5.4%.

Filing the 940 Form

1. Annual Filing Deadlines:

Employers must file the 940 form annually. The form is due by January 31st of the following year. If all FUTA tax payments have been made on time, the deadline is extended to February 10th.

2. Payment of Taxes:

Quarterly Deposits: Employers are required to deposit FUTA tax on a quarterly basis if the tax due is more than $500. If the tax due is $500 or less, it can be carried forward to the next quarter.

Electronic Filing: The IRS encourages electronic filing and payment through the Electronic Federal Tax Payment System (EFTPS) to streamline the process and reduce errors.

Deadlines:

January to March: April 30th
April to June: July 31st
July to September: October 31st
October to December: January 31st

3. Record Retention:

Maintain Records: Employers should retain copies of all filed 940 forms and related tax payment records for at least four years. These records should include the dates and amounts of all tax deposits.

Employee Documentation: Keep detailed records of employee wages and FUTA tax payments, as these will support the information reported on the 940 form.

Filing the 940 Form Using ezPaycheck

ezPaycheck is a payroll software designed to simplify the payroll process for small to mid-sized businesses. Here's how you can use ezPaycheck to file the 940 form:

1. Setup and Configuration:

Install ezPaycheck : Download and install the ezPaycheck software from Halfpricesoft.com.

Enter Company Information: Input your company details, including Employer Identification Number (EIN), address, and other relevant information.

Full instructions on how to setup the application can be found here

2. Payroll Processing:

Enter Employee Data: Add your employees to the system, including their personal information, tax withholding details, and payment schedules.

Run Payroll: Process payroll by entering the hours worked, wages, and any additional earnings or deductions. ezPaycheck will automatically calculate the federal and state taxes, including FUTA.

3. Generate the 940 Form:

Access Tax Forms: Navigate to the tax forms section within ezPaycheck .

Generate Form 940: Select the option to generate the 940 form for the relevant year. The software will automatically populate the form with the necessary payroll data.

Review and Print: Review the form for accuracy. Once verified, print the form or save it as a PDF for electronic filing.

4. Filing the 940 Form:

Electronic Filing: Use ezPaycheck 's electronic filing feature to submit the 940 form directly to the IRS, or use the IRS EFTPS system if preferred.

Mailing the Form: If you choose to mail the form, print the completed form and send it to the appropriate IRS address as indicated in the form's instructions.

5. Payment of Taxes:

Deposit Taxes: Ensure that all FUTA taxes are deposited according to the IRS schedule using the EFTPS system.

Conclusion

The 940 form is a critical component of the payroll tax reporting process for employers. It ensures compliance with federal tax laws, supports accurate record-keeping, and contributes to the funding of unemployment compensation programs. By using payroll software like ezPaycheck , employers can streamline the process of preparing and filing the 940 form, ensuring timely and accurate submissions, avoiding penalties, and maintaining clear financial records.