Specific Instructions

Part 1:Tell Us About Your Return

1.If You Were Required to Pay Your State Unemployment Tax In . . .

Identify the state(s) where you were required to pay state unemployment taxes.

1a. One state only.   Enter the two-letter U.S. Postal Service abbreviation for the state where you were required to pay your state unemployment tax on line 1a. For a list of state abbreviations, see the Schedule A (Form 940) instructions or visit the website for the U.S. Postal Service at www.usps.com.

1b. More than one state (you are a multi-state employer).   Check the box on line 1b. Then fill out Schedule A (Form 940), and attach it to your Form 940.

2.If You Paid Wages in a State That is Subject to Credit Reduction

If you paid wages that are subject to the unemployment tax laws of a credit reduction state, you may have to pay more FUTA tax when filing your Form 940.

A state that has not repaid money it borrowed from the federal government to pay unemployment benefits is called a credit reduction state. The U.S. Department of Labor determines which states are credit reduction states.

For tax year 2014, there are credit reduction states. If you paid wages subject to the unemployment tax laws of these states, check the box on line 2 and fill out Schedule A (Form 940). See the instructions for line 9 before completing the Schedule A (Form 940).

Part 2:Determine Your FUTA Tax Before Adjustments for 2014

If any line in Part 2 does not apply, leave it blank.

3.Total Payments to All Employees

Report the total payments you made during the calendar year on line 3. Include payments for the services of all employees, even if the payments are not taxable for FUTA. Your method of payment does not determine whether payments are wages. You may have paid wages hourly, daily, weekly, monthly, or yearly. You may have paid wages for piecework or as a percentage of profits. Include:

  • Compensation, such as:

    —Salaries, wages, commissions, fees, bonuses, vacation allowances, and amounts you paid to full-time, part-time, or temporary employees.

  • Fringe benefits, such as:

    —Sick pay (including third-party sick pay if liability is transferred to the employer). For details on sick pay, see Pub. 15-A, Employer's Supplemental Tax Guide.

    —The value of goods, lodging, food, clothing, and non-cash fringe benefits.

    —Section 125 (cafeteria) plan benefits.

  • Retirement/Pension, such as:

    —Employer contributions to a 401(k) plan, payments to an Archer MSA, payments under adoption assistance programs, and contributions to SIMPLE retirement accounts (including elective salary reduction contributions).

    —Amounts deferred under a non-qualified deferred compensation plan.

  • Other payments, such as:

    —Tips of $20 or more in a month that your employees reported to you.

    —Payments made by a predecessor employer to the employees of a business you acquired.

    —Payments to nonemployees who are treated as your employees by the state unemployment tax agency.

Wages may be subject to FUTA tax even if they are excluded from your state's unemployment tax.

For details on wages and other compensation, see section 5 of Pub. 15-A.

Example:

You had 3 employees. You paid $44,000 to Employee A, $8,000 to Employee B, and $16,000 to Employee C.

$44,000 Amount paid to Employee A
8,000 Amount paid to Employee B
+ 16,000 Amount paid to Employee C
$68,000 Total payments to employees. You would enter this amount on line 3.

4.Payments Exempt from FUTA Tax

If you enter an amount on line 4, check the appropriate box or boxes on lines 4a through 4e to show the types of payments exempt from FUTA tax. You only report a payment as exempt from FUTA tax on line 4 if you included the payment on line 3.

Some payments are exempt from FUTA tax because the payments are not included in the definition of wages or the services are not included in the definition of employment. Payments exempt from FUTA tax may include:

  • Fringe benefits, such as:

    —The value of certain meals and lodging.

    —Contributions to accident or health plans for employees, including certain employer payments to a Health Savings Account or an Archer MSA.

    —Employer reimbursements (including payments to a third party) for qualified moving expenses, to the extent that these expenses would otherwise be deductible by the employee.

    —Payments for benefits excluded under section 125 (cafeteria) plans.

  • Group term life insurance.

    For information about group term life insurance and other payments for fringe benefits that may be exempt from FUTA tax, see Pub. 15-B, Employer's Tax Guide to Fringe Benefits.

  • Retirement/Pension, such as employer contributions to a qualified plan, including a SIMPLE retirement account (other than elective salary reduction contributions) and a 401(k) plan.

  • Dependent care, such as payments (up to $5,000 per employee, $2,500 if married filing separately) for a qualifying person's care that allows your employees to work and that would be excludable by the employee under section 129.

  • Other payments, such as:

    —All non-cash payments and certain cash payments for agricultural labor, and all payments to “H-2A” visa workers. See For agricultural employers, earlier, or see Pub. 51 (Circular A).

    —Payments made under a workers' compensation law because of a work-related injury or sickness. See section 6 of Pub. 15-A.

    —Payments for domestic services if you did not pay cash wages of $1,000 or more (for all domestic employees) in any calendar quarter in 2013 or 2014, or if you file Schedule H (Form 1040). See For Employers of Household Employees, earlier, or see Pub. 926.

    —Payments for services provided to you by your parent, spouse, or child under the age of 21. See section 3 of Pub. 15 (Circular E).

    —Payments for certain fishing activities. See Pub. 334,Tax Guide for Small Business.

    —Payments to certain statutory employees. See section 1 of Pub. 15-A.

    —Payments to nonemployees who are treated as your employees by the state unemployment tax agency.

See section 3306 and its related regulations for more information about FUTA taxation of retirement plan contributions, dependent care payments, and other payments.

For more information on payments exempt from FUTA tax, see section 14 in Pub. 15 (Circular E) or section 10 in Pub. 51 (Circular A).

Example:

You had 3 employees. You paid $44,000 to Employee A including $2,000 in health insurance benefits. You paid $8,000 to Employee B, including $500 in retirement benefits. You paid $16,000 to Employee C, including $2,000 in health and retirement benefits.

$ 2,000 Health insurance benefits for Employee A
500 Retirement benefits for Employee B
+ 2,000 Health and retirement benefits for Employee C
$4,500 Total payments exempt from FUTA tax. You would enter this amount on line 4 and check boxes 4a and 4c.

5.Total of Payments Made to Each Employee in Excess of $7,000

Only the first $7,000 you paid to each employee in a calendar year, after subtracting any payments exempt from FUTA tax, is subject to FUTA tax. This $7,000 is called the FUTA wage base.

Enter on line 5 the total of the payments over the FUTA wage base you paid to each employee during 2014 after subtracting any payments exempt from FUTA tax shown on line 4.

Following our example:

You had three employees. You paid $44,000 to Employee A, $8,000 to Employee B, and $16,000 to Employee C, including a total of $4,500 in payments exempt from FUTA tax for all three employees. To determine the total payments made to each employee in excess of the FUTA wage base, the payments exempt from FUTA tax and the FUTA wage base must be subtracted from total payments. These amounts are shown in parentheses.
Employees A B C
Total payments to employees $44,000 $8,000 $16,000
Payments exempt from FUTA tax (2,000) (500) (2,000)
FUTA wage base (7,000) (7,000) (7,000)
      $35,000 $500 $7,000
Total of payments made to each employee in excess of the FUTA wage base. You would enter this amount on line 5. $42,500

If you are a successor employer . . .   When you figure the payments made to each employee in excess of the FUTA wage base, you may include the payments that the predecessor made to the employees who continue to work for you only if the predecessor was an employer for FUTA tax purposes resulting in the predecessor being required to file Form 940.

  

Example for successor employers:

During the calendar year, the predecessor employer paid $5,000 to Employee A. You acquired the predecessor's business. After the acquisition, you employed Employee A and paid Employee A an additional $3,000 in wages. None of the amounts paid to Employee A were payments exempt from FUTA tax.
$5,000 Wages paid by predecessor employer
+ 3,000 Wages paid by you
$8,000 Total payments to Employee A. You would include this amount on line 3.
   
$8,000 Total payments to Employee A
– 7,000 FUTA wage base
$1,000 Payments made to Employee A in excess of the FUTA wage base.
   
$1,000 Payments made to Employee A in excess of the FUTA wage base.
+ 5,000 Taxable FUTA wages paid by predecessor employer
$6,000 You would include this amount on line 5.

6. Subtotal

To figure your subtotal, add the amounts on lines 4 and 5 and enter the result on line 6.

line 4  
+ line 5  
line 6  

7. Total Taxable FUTA Wages

To figure your total taxable FUTA wages, subtract line 6 from line 3 and enter the result on line 7.

line 3  
− line 6  
line 7  

8. FUTA Tax Before Adjustments

To figure your total FUTA tax before adjustments, multiply line 7 by .006 and then enter the result on line 8.

line 7  
x .006  
line 8  

Part 3:Determine Your Adjustments

If any line in Part 3 does not apply, leave it blank.

9.If ALL of the Taxable FUTA Wages You Paid Were Excluded from State Unemployment Tax. . .

If all of the taxable FUTA wages you paid were excluded from state unemployment tax, multiply line 7 by .054 and enter the result on line 9.

line 7  
x .054  
line 9  

If you were not required to pay state unemployment tax because all of the wages you paid were excluded from state unemployment tax, you must pay FUTA tax at the 6.0% (.060) rate. For example, if your state unemployment tax law excludes wages paid to corporate officers or employees in specific occupations, and the only wages you paid were to corporate officers or employees in those specific occupations, you must pay FUTA tax on those wages at the full FUTA rate of 6.0% (.060). When you figured the FUTA tax before adjustments on line 8, it was based on the maximum allowable credit (5.4%) for state unemployment tax payments. Because you did not pay state unemployment tax, you do not have a credit and must figure this adjustment.

If line 9 applies to you, lines 10 and 11 do not apply to you.   Therefore, leave lines 10 and 11 blank. Do not fill out the worksheet in these instructions. Complete Schedule A (Form 940) only if you are a multi-state employer.

10.If SOME of the Taxable FUTA Wages You Paid Were Excluded From State Unemployment Tax, or You Paid any State Unemployment Tax Late...

You must fill out the worksheet on the next page if:

  • Some of the taxable FUTA wages you paid were excluded from state unemployment, or

  • Any of your payments of state unemployment tax were late.

The worksheet takes you step by step through the process of figuring your credit. You'll find an example of how to use it. Do not complete the worksheet if line 9 applied to you (see instructions above).

Before you can properly fill out the worksheet, you will need to gather the following information.   
  • Taxable FUTA wages (Form 940, line 7).

  • Taxable state unemployment wages (state and federal wage bases may differ).

  • The experience rates assigned to you by the states where you paid wages.

  • The amount of state unemployment taxes you paid on time. (On time means that you paid the state unemployment taxes by the due date for filing Form 940.)

  • The amount of state unemployment taxes you paid late. (Late means after the due date for filing Form 940.)

    Do not include any penalties, interest, or unemployment taxes deducted from your employees' pay in the amount of state unemployment taxes. Also, do not include as state unemployment taxes any special administrative taxes or voluntary contributions you paid to get a lower assigned experience rate or any surcharges, excise taxes, or employment and training taxes. (These items are generally listed as separate items on the state's quarterly wage report.)

For line 3 of the worksheet:   
  • If any of the experience rates assigned to you were less than 5.4% for any part of the calendar year, you must list each assigned experience rate separately on the worksheet.

  • If you were assigned six or more experience rates that were less than 5.4% for any part of the calendar year, you must use another sheet to figure the additional credits and then include those additional credits in your line 3 total.

  After you complete the worksheet, enter the amount from line 7 of the worksheet on Form 940, line 10. Do not attach the worksheet to your Form 940. Keep it with your records.

Worksheet—Line 10

Before you begin:

Read the Example before completing this worksheet.

Use this worksheet to figure your credit if:

  • Some of the wages you paid were excluded from state unemployment tax, OR

  • You paid any state unemployment tax late.

For this worksheet, do not round your figures.

Before you can properly fill out this worksheet, you must gather this information:
  Taxable FUTA wages (Form 940, line 7)
  Taxable state unemployment wages
  The experience rates assigned to you by the states where you paid wages
  The amount of state unemployment taxes you paid on time. (On time means that you paid the state unemployment taxes by the due date for filing Form 940.) Include any state unemployment taxes you paid on nonemployees who were treated as employees by your state unemployment agency.
  The amount of state unemployment taxes you paid late. (Late means after the due date for filing Form 940.)
1. Maximum allowable credit — Enter Form 940, line 7 
(Form 940, line 7 x .054 = line 1).
. x .054 on line 1 1. .
     
2. Credit for timely state unemployment tax payments — How much did you pay on time? 2. .
  If line 2 is equal to or more than line 1, STOP here.
You have completed the worksheet. Leave Form 940, line 10 blank.
   
  If line 2 is less than line 1, continue this worksheet.    
3. Additional credit — Were ALL of your assigned experience rates 5.4% or more?    
  If yes, enter zero on line 3. Then go to line 4 of this worksheet.    
  If no, fill out the computations below. List ONLY THOSE STATES for which your assigned experience rate for any part of the calendar year was less than 5.4%.    
      State   Computation rate 
The difference between 5.4%  
(.054) and your assigned experience rate (.054 – .XXX (assigned experience rate) = computation rate)
  Taxable state unemployment wages at assigned experience rate   Additional Credit    
    1.     . x . = .    
    2.     . x . = .    
    3.     . x . = .    
    4.     . x . = .    
    5.     . x . = .    
  If you need more lines, use another sheet and include those additional credits in the total. Total .    
  Enter the total on line 3.    
  3. .
4. Subtotal (line 2 + line 3 = line 4) 4. .
  If line 4 is equal to or more than line 1, STOP here.
You have completed the worksheet. Leave Form 940, line 10 blank.
   
  If line 4 is less than line 1, continue this worksheet.    
5. Credit for paying state unemployment taxes late:
  5a. What is your remaining allowable credit? (line 1 – line 4 = line 5a) 5a. .    
  5b. How much state unemployment tax did you pay late? 5b. .    
5c. Which is smaller, line 5a or line 5b? Enter the smaller number here. 5c. .    
  5d. Your allowable credit for paying state unemployment taxes late (line 5c x .90 = line 5d) 5d. .
6. Your FUTA credit (line 4 + line 5d = line 6) 6. .
  If line 6 is equal to or more than line 1, STOP here.
You have completed the worksheet. Leave Form 940, line 10 blank.
   
  If line 6 is less than line 1, continue this worksheet.
7. Your adjustment (line 1 – line 6 = line 7) Enter line 7 from this worksheet on Form 940, line 10. 7. .
Do not attach this worksheet to your Form 940. Keep it for your records.

Example for using the worksheet:

Employee A and Employee B are corporate officers whose wages are excluded from state unemployment tax in your state. Employee C's wages are not excluded from state unemployment tax. During 2014, you paid $44,000 to Employee A, $22,000 to Employee B, and $16,000 to Employee C. Your state's wage base is $8,000. You paid some state unemployment tax on time, some late, and some remains unpaid.
Here are the records:  
Total taxable FUTA wages (Form 940, line 7) $21,000.00
Taxable state unemployment wages $ 8,000.00
Experience rate for 2014 .041(4.1%)
State unemployment tax paid on time $100.00
State unemployment tax paid late $78.00
State unemployment tax not paid $150.00
1. Maximum allowable credit
    $21,000.00 (Form 940, line 7)        
    x .054 (maximum credit rate)        
    $1,134.00       1. $1,134.00
               
2. Credit for timely state unemployment tax payments 2. $100.00
3. Additional credit     3. $104.00
    .054 (maximum credit rate)   $8,000    
    – .041 (your experience rate)   x .013    
    .013 (your computation rate)   $104.00    
4. Subtotal (line 2 + line 3) 4. $204.00
    $100          
    + 104          
    $204          
5. Credit for paying state unemployment taxes late    
  5a. Remaining allowable credit: (line 1 - line 4) 5a. $930.00
    $1,134.00          
    – 204.00          
    $930.00          
  5b. State unemployment tax paid late: 5b. $78.00
  5c. Which is smaller? Line 5a or line 5b? 5c. $78.00
  5d. Allowable credit (for paying late)     5d. $70.20
    $78.00          
    x .90          
    $70.20          
6. Your FUTA credit (line 4 + line 5d) 6. $274.20
    $204.00          
    + 70.20          
    $274.20          
7. Your adjustment (line 1 - line 6) 7. $859.80
    $1,134.00          
    – 274.20          
    $859.80 You would enter this amount on Form 940, line 10.

11.If Credit Reduction Applies . . .

If you paid FUTA taxable wages that were also subject to state unemployment taxes in any states that are subject to credit reduction, enter the total amount from Schedule A (Form 940) on Form 940, line 11. However, if you entered an amount on line 9 because all the FUTA taxable wages you paid were excluded from state unemployment tax, skip line 11 and go to line 12.

Part 4:Determine Your FUTA Tax for 2014

If any line in Part 4 does not apply, leave it blank.

12.Total FUTA Tax After Adjustments

Add the amounts shown on lines 8, 9, 10, and 11, and enter the result on line 12.

line 8  
line 9  
line 10  
+ line 11  
line 12  

If line 9 is greater than zero, lines 10 and 11 must be zero because they would not apply.

13.FUTA Tax Deposited for the Year

Enter the amount of FUTA tax that you deposited for the year, including any overpayment that you applied from a prior year.

14.Balance Due

If line 13 is less than line 12, enter the difference on line 14.

line 12  
– line 13  
line 14  

If line 14 is:

  • More than $500, you must deposit your tax. See When Must You Deposit Your FUTA Tax.

  • $500 or less, you can deposit your tax, pay your tax with a credit card or debit card, pay your tax by EFW if filing electronically, or pay your tax by check or money order with your return. For more information on electronic payment options, visit the IRS website at www.irs.gov/e-pay.

  • Less than $1, you do not have to pay it.

    If you do not deposit as required and pay any balance due with Form 940, you may be subject to a penalty.

If you pay by EFT, credit card, or debit card, file your return using the Without a payment address under Where Do You File. Do not file Form 940-V, Payment Voucher.

What if you cannot pay in full?   If you cannot pay the full amount of tax you owe, you can apply for an installment agreement online. You can apply for an installment agreement online if:
  • You cannot pay the full amount shown on line 14,

  • The total amount you owe is $25,000 or less, and

  • You can pay the liability in full in 24 months.

  To apply using the Online Payment Agreement Application, go to IRS.gov, click on Tools, then click on Online Payment Agreement.

  Under an installment agreement, you can pay what you owe in monthly installments. There are certain conditions you must meet to enter into and maintain an installment agreement, such as paying the liability within 24 months, and making all required deposits and timely filing tax returns during the length of the agreement.

  If your installment agreement is accepted, you will be charged a fee and you will be subject to penalties and interest on the amount of tax not paid by the due date of the return.

15.Overpayment

If line 13 is more than line 12, enter the difference on line 15.

line 13  
– line 12  
line 15  

If you deposited more than the FUTA tax due for the year, you may choose to have us either:

  • Apply the refund to your next return, or

  • Send you a refund.

Check the appropriate box in line 15 to tell us which option you select. If you do not check either box, we will automatically refund your overpayment, less any amount we apply to any past due tax account shown in our records under your EIN.

If line 15 is less than $1, we will send you a refund or apply it to your next return only if you ask for it in writing.

Part 5: Report Your FUTA Tax Liability by Quarter Only if Line 12 is More Than $500

Fill out Part 5 only if line 12 is more than $500. If line 12 is $500 or less, leave Part 5 blank and go to Part 6.

16.Report the Amount of Your FUTA Tax Liability for Each Quarter

Enter the amount of your FUTA tax liability for each quarter on lines 16a–d. Do not enter the amount you deposited. If you had no liability for a quarter, leave the line blank.

16a. 1st quarter (January 1 to March 31).

16b. 2nd quarter (April 1 to June 30).

16c. 3rd quarter (July 1 to September 30).

16d. 4th quarter (October 1 to December 31).

To figure your FUTA tax liability for the fourth quarter, complete Form 940 through line 12. Then copy the amount from line 12 onto line 17. Lastly, subtract the sum of lines 16a through 16c from line 17 and enter the result on line 16d.

Example:
You paid wages on March 28 and your FUTA tax on those wages was $200. You were not required to make a deposit for the 1st quarter because your accumulated FUTA tax was $500 or less. You paid additional wages on June 28 and your FUTA tax on those wages was $400. Because your accumulated FUTA tax for the 1st and 2nd quarters exceeded $500, you were required to make a deposit of $600 by July 31.
You would enter $200 in line 16a because your liability for the 1st quarter is $200. You would also enter $400 in line 16b to show your 2nd quarter liability.

In years when there are credit reduction states, you must include liabilities owed for credit reduction with your fourth quarter deposit. You may deposit the anticipated extra liability throughout the year, but it is not due until the due date for the deposit for the fourth quarter, and the associated liability should be recorded as being incurred in the fourth quarter.

17.Total Tax Liability for the Year

Your total tax liability for the year must equal line 12. Copy the amount from line 12 onto line 17.

Part 6: May We Speak With Your Third-Party Designee?

If you want to allow an employee, your paid tax preparer, or another person to discuss your Form 940 with the IRS, check the “Yes” box. Then enter the name and phone number of the person you choose as your designee. Be sure to give us the specific name of a person — not the name of the firm that prepared your tax return.

Have your designee select a five-digit Personal Identification Number (PIN) that he or she must use as identification when talking to the IRS about your form.

By checking “Yes,” you authorize us to talk to your designee about any questions that we may have while we process your return. Your authorization applies only to this form, for this year; it does not apply to other forms or other tax years.

You are authorizing your designee to:

  • Give us any information that is missing from your return,

  • Ask us for information about processing your return, and

  • Respond to certain IRS notices that you have shared with your designee about math errors and in preparing your return. We will not send notices to your designee.

You are not authorizing your designee to:

  • Receive any refund check,

  • Bind you to anything (including additional tax liability), or

  • Otherwise represent you before the IRS.

The authorization will automatically expire 1 year after the due date for filing your Form 940 (regardless of extensions). If you or your designee want to end the authorization before it expires, write to the IRS office for your location using the Without a payment address under Where Do You File.

If you want to expand your designee's authorization or if you want us to send your designee copies of your notices, see Pub. 947, Practice Before the IRS and Power of Attorney.

Part 7: Sign Here (Approved Roles)

You MUST Fill Out Both Pages of This Form and SIGN It

Failure to sign will delay the processing of your return.

On page 2 in Part 7, sign and print your name and title. Then enter the date and the best daytime telephone number, including area code, where we can reach you if we have any questions.

Who Must Sign Form 940?

The following persons are authorized to sign the return for each type of business entity.

  • Sole proprietorship—The individual who owns the business.

  • Partnership (including a limited liability company (LLC) treated as a partnership) or unincorporated organization— A responsible and duly authorized partner, member, or officer having knowledge of its affairs.

  • Corporation (including an LLC treated as a corporation)—The president, vice president, or other principal officer duly authorized to sign.

  • Single member LLC treated as a disregarded entity for federal income tax purposes—The owner of the LLC or a principal officer duly authorized to sign.

  • Trust or estate—The fiduciary.

Form 940 may also be signed by a duly authorized agent of the taxpayer if a valid power of attorney or reporting agent authorization (Form 8655, Reporting Agent Authorization) has been filed.

Alternative signature method.   Corporate officers or duly authorized agents may sign Form 940 by rubber stamp, mechanical device, or computer software program. For details and required documentation, see Rev. Proc. 2005-39, 2005-28 I.R.B. 82, available at www.irs.gov/irb/2005-28_IRB/ar16.html.

Paid preparers.   A paid preparer must sign Form 940 and provide the information in the Paid Preparer Use Only section of Part 7 if the preparer was paid to prepare Form 940 and is not an employee of the filing entity. Paid preparers must sign paper returns with a manual signature. The preparer must give you a copy of the return in addition to the copy to be filed with IRS.

  If you are a paid preparer, enter your Preparer Tax Identification Number (PTIN) in the space provided. Include your complete address. If you work for a firm, write the firm's name and the EIN of the firm. You can apply for a PTIN online or by filing Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application and Renewal. For more information about applying for a PTIN online, visit the IRS website at www.irs.gov/ptin. You cannot use your PTIN in place of the EIN of the tax preparation firm.

  Generally, do not complete the Paid Preparer Use Only section if you are filing the return as a reporting agent and have a valid Form 8655, Reporting Agent Authorization, on file with the IRS. However, a reporting agent must complete this section if the reporting agent offered legal advice, for example, by advising the client on determining whether its workers are employees or independent contractors for Federal tax purposes.


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