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IRS Form 940 - Federal Unemployment Tax Report

IRS Form 940 is the federal unemployment tax annual report form. This form is used to report and pay unemployment taxes to the IRS. Companies that have employees must pay and report unemployment taxes. You do not deduct these employment taxes from employee pay, but you must set aside amounts for this tax and report it on Form 940.

What Are Unemployment Taxes?

Unemployment taxes are paid by employers to fund federal and state unemployment tax funds. These funds provide payments to employees who have been laid off or terminated from their employment.

What Is the Federal Unemployment Tax Rate?

Unemployment tax payments are .6% of employee wages and salaries, up to a maximum of $7000 of wages per year. (The rate is 6%, but 5.4% is deducted if state unemployment taxes are paid. The 5.4% is a credit for paying the state unemployment tax.) For most businesses, the cost of federal unemployment tax per employee is $42 ($7000 x .6%).

Federal Unemployment Tax is paid by the employer, and should not be deducted from employee pay.

Who Must File Form 940?

Your business must file Form 940 if:

  1. You paid wages of $1,500 or more to employees in a calendar quarter of the year.

  2. You had one or more employees for at least some part of a day in any 20 or more different weeks in either of the past two years. Employers must count all full-time, part-time, and temporary employees, but not owners or partners.

When Is Form 940 Due?

The due date for Form 940 is January 31 for the previous year. For example, for the 2018 tax year, the form is due on January 31, 2019.

When Are Form 940 Payments Due?

Unemployment tax payments may be due before the 940 report form due date. If your FUTA tax is more than $500 for the calendar year, you must deposit at least one quarterly payment. If your FUTA tax for a quarter is less than $500, you can carry it over to the next quarter. You must make a quarterly payment when the cumulative unemployment tax due is more than $500.

How Do I Make Payments for Form 940 Taxes?

In addition to the annual FUTA report on Form 940, you must also make payments on unemployment taxes, either annually or quarterly, depending on the amount owed. Your payroll provider should be making these payments on your behalf.

What's the Difference Between Form 940 and Form 941?

These two forms are often confusing, but they are for different types of taxes that employers must pay. Both forms go to the IRS.

  • Form 940 is for reporting and paying unemployment taxes annually.

  • Form 941 is for reporting payroll taxes quarterly. The payroll taxes included in this report are for federal income tax withholding and for withholding of FICA taxes for Social Security and Medicare.

Quick note: This is not to be taken as legal advice. Speak with health and legal professional before implementing guidelines for your company.

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