IRS Form 940 for 2023: Employer’s Annual Federal Unemployment (FUTA) Tax Return

Form 940 for 2023 - An Overview

Updated on September 11, 2023 - 10:30 AM by Admin, TaxBandits

Form 940 is an IRS tax form that is filed annually with the IRS by employers. If your business hasn’t filed a Form 940 before, here is a helpful guide to get started with your 940 filing!

Table of Contents:

1. What is IRS Form 940?

Form 940 is an annual IRS tax form used by employers to report the Federal Unemployment Tax Act (FUTA) tax. FUTA tax is a federal payroll tax that employers must pay to fund unemployment benefits for workers who have lost their jobs. This tax is not withheld from employee wages; instead, employers are responsible for paying it themselves.

2. Who must file Form 940?

Employers are required to file Form 940 under the following conditions:

  • If they have paid wages of $1,500 or more in a calendar quarter.
  • If they have more than one employee for at least some part of a day in any 20 or more different weeks during the year. These include full-time, part-time, or seasonal/temporary employment.

It is also important to note that states have their own unemployment taxes, referred to as SUTA. This will factor into completing your Form 940.

3. What is the difference between Form 940 and Form 941?

Generally, Form 940 and Form 941 are both related to employers' tax reporting, but they serve different purposes:

Form 940 Form 941

Form 940 is used to report and pay the Federal unemployment tax, also known as FUTA (Federal Unemployment Tax Act) tax. This tax provides funds for unemployment compensation to workers who have lost their jobs.

Form 941 is used to report employment taxes, including Federal income tax withholding, Social Security tax, and Medicare tax, for employees. It also includes the employer's portion of these taxes.

940 Filing is done annually, and it summarizes the amount of FUTA tax owed for the entire year.

Employers are required to file Form 941 on a quarterly basis (four times a year) to report the tax liabilities for each quarter.

4. What are the Special cases for filing 940 Forms?

There are several special cases and circumstances that may affect the filing of Form 940, Some of these special cases include

Household Employers:

If you're a household employer and paid cash wages of $1,000 or more to household employees in any 2021 or 2022 calendar quarter, use Schedule H (Form 1040) instead of Form 940. You can include household employee FUTA taxes on Form 940 if you also have other employees.

Agricultural Employers:

File Form 940 if you paid cash wages of $20,000 or more to farmworkers in any 2021 or 2022 calendar quarter or employed 10+ farmworkers for at least 20 weeks. Wages to "H-2A visa workers" aren't subject to FUTA tax.

Indian Tribal Governments:

Services rendered by employees of a federally recognized Indian tribal government employer are exempt from FUTA tax if the tribe participated in the state unemployment system for a full year.

Tax-Exempt Organizations:

Section 501(c)(3) organizations are usually exempt from FUTA tax, but certain payment scenarios involving
non-section 501(c)(3) organizations may require it.

State or Local Government Employers:

Employees of the state, political subdivisions, or instrumentalities of the state are FUTA tax-exempt; Form 940 isn't needed.

5. What is FUTA in Form 940?

FUTA (Federal Unemployment Tax Act) refers to the federal tax that employers are required to pay to fund unemployment benefits for workers who have lost their jobs. This tax is used to provide financial support to unemployed individuals and is administered by the state workforce agencies.

Employers are responsible for paying FUTA tax on the wages they pay to their employees, up to a certain wage base. The tax rate and wage base can vary from year to year and are determined by federal regulations. 940 Form is used to report and calculate the amount of FUTA tax owed by an employer for a given tax year.

6. What is Credit Reduction in Form 940?

You may have heard the term, Credit Reduction, and wondered how this is relevant to Form 940. Credit reduction states have borrowed money from the federal government but have not yet paid this back.

For the tax year 2023, the credit reduction rate is as follows:

States Credit Reduction Rates
California 0.6%
Connecticut 0.6%
Illinois 0.6%
New York 0.6%
U.S. Virgin Islands 3.6%

7. Who are Multi-State Employers?

Multi-state employers are required to pay state unemployment taxes in more than one state because they hire employees across more than one state. You will need to indicate that you are a multi-state employer by checking the box on line 1b of Form 940. Additionally, you are required to complete and attach Form 940 Schedule A to determine credit reduction information.

8. What information is required to file Form 940 for 2023?

To get started with Form 940, you will need to have your basic business information on hand.

This includes the Name, Legal address, and Employer Identification Number (EIN). You will also need to have the total payments made to all employees and figure your employer-share of FUTA taxes. It is also crucial that you have information regarding your FUTA liability deposits.

9. When is the deadline for the 940 tax Form?

The deadline to file Form 940 with the IRS for the 2023 tax year is January 31, 2024. If the due date falls on the weekend or a federal holiday then the following day is the deadline. If the FUTA taxes are deposited, then it can be filed by February 10, 2024.

10. Are there any penalties associated with IRS Form 940?

If your business fails to file 940 Form with the IRS by January 31, 2024, the IRS will assess penalties.

By doing the following you can avoid unwanted interest and penalties from the IRS:

  • Deposit your FUTA taxes on time
  • File your annual Form 940 by the deadline
  • Attach the required Schedules (A, R)

For filing Form 940, select the IRS recommended way of e-filing. With TaxBandits, you can E-file 940 Form easily with the other supported Forms.