Form 940 Schedule A: Multi-State Employer and Credit Reduction Information

What is Form 940 Schedule A?

Form 940 Schedule A, Multi-State Employer and Credit Reduction Information, is used by employers when they are required to pay state unemployment tax in more than one state or if the paid wages in any state are subject to credit reduction. This form must be attached to the Form 940 when filed.

Who must file Form 940 Schedule A?

You must complete and attach Form 940 Schedule A to your annual Form 940 if either of the following applies:

• Multi-State Employers: Paid state unemployment taxes (SUTA) in more than one state.
• Employers in credit reduction states: Paid wages in a state subject to FUTA credit reduction.

How do you add Schedule A (Form 940) information to Form 940?

If you’re a multi-state employer (operating in more than one state), check the box on line 1b in Form 940. Then, fill out Schedule A (Form 940) and attach it to your Form 940.

If there are credit reduction states and you paid wages subject to the unemployment tax laws of credit reduction states, check the box on line 2 in Form 940 and fill out Schedule A (Form 940).

The total from Schedule A is entered on Form 940, Line 11. The total entered here should match the total credit reduction calculated on Form 940 Schedule A.

Click here to learn the line-by-line instructions for Form 940.

How to calculate the FUTA tax rate on Form 940?

To calculate your FUTA tax rate, complete Form 940 Schedule A. It is a worksheet that lists the applicable tax rates in each state. You can find your credit reduction rate on Schedule A of Form 940. Enter your total credit reduction on line 11 of the Form 940.

What are credit reduction states?

States need sufficient funds on hand to pay their unemployment insurance benefits. If a state does not have enough funds to cover the costs, it must borrow from the federal government. If a state doesn’t repay the federal loan after two years, then it might become a credit-reduction state. Employers in these states will not be able to get full credit for their FUTA tax rates.

The Department of Labor determines which states are subject to credit reductions. If an employer pays wages that fall under the unemployment tax laws of a credit reduction state, they are required to pay an additional federal unemployment tax when filing Form 940.

Click here to find the latest information on credit-reduction states for 2026.

What if your state is a credit reduction state?

If your business operates in a credit reduction state, you may owe additional FUTA tax because the state has outstanding federal unemployment insurance loans. This reduces the FUTA tax credit you can claim, increasing your federal unemployment tax liability.

Example:

Suppose you pay $10,000 in FUTA-taxable wages to employees in a credit reduction state with a 0.3% credit reduction rate.

• FUTA tax before credit reduction: $10,000 × 0.6% = $60
• Additional credit reduction tax: $10,000 × 0.3% = $30
• Total FUTA tax: $90

You must report the additional $30 credit reduction tax on Schedule A (Form 940) and enter the total credit reduction amount on
Form 940, Line 11.