Published on: December 26, 2019

What is IRS Form 940?

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    Business Tax form 940

    The IRS form 940 is the federal unemployment tax return form.

    Businesses use this form to repay unemployment taxes to the IRS. If your organization hires employees, you have to pay unemployment taxes. 

    Unemployment taxes don’t have to be deducted from the employment taxes that your employees pay. However, you have to set aside the correct amount to report on your IRS form 940. 

    When it comes to the federal unemployment tax annual report form, which is also commonly referred to as for 940, it’s essential that you accurately file it. 

    That’s why today come on we’ve created a complete guide to help you better understand the IRS form 940. Keep reading to learn more!

    What Is the IRS Form 940?

    The IRS Form 940 pays for state and federal unemployment tax funds.

    Ever wonder what happens when employees get laid off or terminated from their job? The funds collected from the unemployment tax are paid to these individuals. 

    The tax rate for unemployment taxes is based on individual employee salaries and taxes. A maximum of $7,000 can be paid per employee towards unemployment taxes. 

    The average unemployment tax rate is .6%.

    However, if unemployment taxes are paid, the rate for unemployment taxes is 5.4%. 

    This 5.4% rate is a type of credit that’s paid towards unemployment taxes within the state that your business operates in. 

    Keep in mind that each state has a unique unemployment tax rate. If you don’t understand your state-specific tax rate, you should check the US Department of labor for state unemployment tax rates.

    When does your business have to file a form 940? 

    Form 940 is used in any case where one or more employees were paid at least $1,500 during a quarter of the calendar year. 

    You also have to file a form 940 if you had at least one employee work for your company and any 20 different weeks throughout two years. 

    Your business has to count temporary employees, part-time employees, and full-time employees when filing a Form 940. You do not have to include partners or owners on this form. 

    Why Is Form 940 Important?

    The federal unemployment tax act created the IRS form 940. This act provided guidelines For states and how they should handle the unemployment benefit programs at the offer.

    The federal unemployment tax act provided the federal government with resources that are needed to give individuals financial support after they lost jobs because of conditions they were outside of their control.

    If you fire an employee from your business, they don’t receive unemployment from the federal government. The money is collected by the federal unemployment tax act and also be used as a fund if a state has limited funds for an emergency. 

    When to File Form 940 and Pay FUTA

    An IRS Form 940 is meant to be filed based on your business’s previous years’ payments. For example, you would provide the government with form 940 and 2020 for payments that you made in 2019.

    Similar to quarterly income taxes, the federal unemployment tax act must be paid by the last day of the month at the end of the quarter.

    This means that taxes that you collect between January to March have to be paid by April 30. 

    Taxes you collect between April and June have to be paid July 31. Taxes you collect between July to September, paid October 31, and taxes you collect between October to December have to be paid by January 31 of the following year.

    Since the federal unemployment tax act maxes out at $7,000, you can expect your business to be paying the majority of this during your first quarter.

    How Do You Accurately File Form 940?

    For you to accurately fill out a form 940, you have to complete information about your state’s unemployment tax status, as well as your business.

    You’ll also need to discover your FUTA tax for the year. Be aware, but you have to consider adjustments to the total pay for payments of employees that are excluded from paying FUTA tax. 

    Understanding the total payment that employee has made for the year and be sure to subtract the fees that they’ve made if they’ve paid over $7,000.

    Before Calculating 

    The first step that you need to take to file Form 940 is it into the state abbreviation if your business only has to worry about paying FUTA tax in one state. However, if you happen to employ people across several states, you have to fill out a Schedule A Form 940. 

    Schedule A Form 940 has to be filled out for each state your employ people in. In this form, you’ll also see the taxable wage rate for that state, the credit reduction, a reduction rate, as well as the total credit reduction.


    Gather the following information:

    • Total payments of employees that have paid an excess of $7,000 for the year
    • Total payments of all of your employees for the calendar year
    • The total amount and payments that you’ve made that are exempt from the FUTA tax, as well as the source of those payments. Some examples of payment that are exempt include retirement plan benefits and group life insurance.

    Step three, your Calculator adjustments that are required for state unemployment taxes while including credit reductions.

    In step four, you need to calculate any other payments or any other balances that a deal from the previous tax year. The IRS requires you to report your companies tax liability if you’ve made more than $500 in the quarter.

    Once you’ve discovered how much you owe, you are responsible for paying everything owed.  

    Understanding the Importance of Properly Filing IRS Form 940

    As a business owner, there are many tax responsibilities that you’re in charge of handling. 

    Your federal unemployment tax payments have to be recorded by the IRS, which is why you need to follow your form 940 on time. 

    This is the government’s way of ensuring that you’re not only meeting your obligations as an employer but that you’re following all federal and state tax laws.

    Are you looking for experienced advocates to help you address your form 940 filing? Click here to contact us today. 

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