Schedule A (Form 940) is used by employers who are required by the IRS to pay state unemployment tax in more than one state, or if the employer paid wages in any state and is subject to a credit reduction. Schedule A must be attached to Form 940 when filed.
The purpose of a credit reduction for certain states is to supply sufficient funds to cover unemployment insurance benefits. Not having these funds readily available will cause the state to borrow from the federal government. Currently, there are two states with a credit reduction which are California and the U.S. Virgin Islands. States that fail to repay the federal loan after two years may also become a credit reduction state.
Adding information to Schedule A is easy! If you are a multi-state employer (operating in more than one state), simply check the box on line 1b, then fill out Schedule A (Form 940) and attach it to your Form 940.
Employers who live in a credit reduction state and paid wages subject to the unemployment tax laws of the state, should check the box on line 2 in Form 940 and fill out Schedule A (Form 940).
The FUTA tax rate for your state can be calculated by completing Schedule A (Form 940). Simply enter your total credit reduction on line 11 of the Form with the provided list of applicable tax rates for each state. Better yet, when you file with TaxBandits we will automatically calculate your FUTA tax rates for you.