Form 940 Credit Reduction Changes for 2024

Stephanie Glanville | Last Updated: December 02, 2024

Written by Stephanie Glanville

Stephanie Glanville is the Marketing Manager of TaxBandits. She has several years of experience with IRS tax forms and the funtionality of TaxBandits. With a passion to help business owners better understand their IRS tax forms and filing, she aims to create content that is valuable and informative.

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Form 940 Changes for the 2024 Tax Year

For the 2024 tax year, the IRS has made several changes to Form 940, and it's crucial to be aware of these changes before filing your Form 940.

Increase in Credit Reduction Rates:
The IRS has raised the credit reduction rate for certain states for the 2024 tax year, resulting in higher Federal Unemployment Tax Act (FUTA) taxes for employers in those states. Specifically, California (CA), and New York (NY) now have a credit reduction rate of 0.9%, while the U.S. Virgin Islands (VI) has a rate of 4.2%.
Electronically Filing an Amended Form 940:
Previously, amendments could only be filed using paper forms. However, starting in 2024 or sometime in between, the IRS plans to introduce electronic filing for amended Form 940.
New Form 940 (sp) in Spanish:
Form 940-PR is no longer available for filing for tax years beginning after December 31, 2022. Instead, employers in Puerto Rico and the U.S. Virgin Islands have the option to file a new Form 940 (sp).

What are the Credit Reduction States for 2024 in Form 940?

Credit Reduction State:

Credit Reduction States are those states that have borrowed funds from the federal government to cover their unemployment insurance programs but have not repaid the borrowed amount within the specified time frame. When a state fails to repay these federal loans on time, it is classified as a credit reduction state.

Employees in these states are subject to additional Federal Unemployment Tax Act (FUTA) obligations. This additional tax is imposed to help repay the outstanding federal loans that the state has not yet settled.

Check out the credit reduction rates for 2024 in the table below:

States	2021	2022	2023	2024
California (CA)	-	0.3%	0.6%	0.9%
Connecticut (CT)	-	0.3%	-	-
Illinois (IL)	-	0.3%	-	-
New York (NY)	-	0.3%	0.6%	0.9%
U.S. Virgin Islands (VI)	3.3%	3.6%	3.9%	4.2%

To indicate this credit reduction, you should check the appropriate box on line 2 of Form 940 and complete
940 Schedule A.

If you are a multi-state employer or paid wages to employees in any of the credit reduction states listed above, click here to learn about your additional requirements along with IRS Form 940.

When to file Form 940?

Form 940, the Federal Unemployment Return must be filed annually. The deadline to file Form 940 with the IRS for the 2024 tax year is January 31, 2025.

However, you must deposit the FUTA tax to the IRS if certain tax liability criteria are met. Click here to learn more about the 940 deposit due dates.

Never Miss Your 940 Deadline!

Receive timely updates on IRS changes and deadline reminders from TaxBandits. File Form 940 with TaxBandits and avoid incurring late filing penalties.