Who Must File Form 940?
Most employers pay both a federal (FUTA) and a state unemployment tax. There are three tests used to determine whether you must pay FUTA tax: a general test, household employees test, and agricultural employees test.
Under the general test, you are subject to FUTA tax on the wages you pay employees who are not household or agricultural employees and must file Form 940 (PDF), Employer's Annual Federal Unemployment (FUTA) Tax Return, for 2014 if:
- You paid wages of $1,500 or more to employees in any calendar quarter during 2013 or 2014, or
- You had one or more employees for at least some part of a day in any 20 or more different weeks in 2013 or 20 or more different weeks in 2014. Count all full-time, part-time and temporary employees. However, if your business is a partnership, do not count its partners.
If you sold or transferred your business during the year, and one of the conditions above applies, you must file Form 940. However, do not include any wages paid by the predecessor employer on your Form 940 unless you are a successor employer. For details, see "Successor employer" in the Form 940 Instructions (PDF). If you will not be liable for filing Form 940 in the future, see "Final: Business closed or stopped paying wages" under Type of Return in the Form 940 Instructions (PDF).
For the test for household employees, see Publication 926 (PDF), Household Employer’s Tax Guide and Topic 756. For the test for agricultural employees, see Publication 51, (Circular A), Agricultural Employer’s Tax Guide, and Topic 760, Reporting and Deposit Requirements for Agricultural Employers.
FUTA tax rate: For 2014, the FUTA tax rate is 6.0%. The tax applies to the first $7,000 you paid to each employee as wages during the year. The $7,000 is often referred to as the federal or FUTA wage base. Your state wage base may be different.
Generally, if you paid wages subject to state unemployment tax, you may receive a credit of up to 5.4% when you file your Form 940. If you are entitled to the maximum 5.4% credit, the FUTA tax rate after credit is 0.6%. Generally, you are entitled to the maximum credit if you paid your state unemployment taxes in full on time, and the state is not determined to be a credit reduction state. See the Instructions for Form 940 to determine the credit.
Credit Reduction State: This is a state that has not repaid money it borrowed from the federal government to pay unemployment benefits. The Department of Labor runs the loan program and determines the credit reduction states each year. The Department of Labor has information about the credit reduction states on their Program Statistics page available at DOL.gov. If an employer pays wages that are subject to the unemployment tax laws of a credit reduction state, the credit an employer may receive for state unemployment tax it paid is reduced, resulting in a greater amount of federal unemployment tax due when filing its Form 940 and including the Form 940, Schedule A (PDF), Multi-State Employer and Credit Reduction Information.
Schedule A (Form 940): You must use Form 940, Schedule A (PDF) if you paid wages to employees in more than one state or if you paid wages in any state that is subject to credit reduction.
The due date for filing the Form 940 is January 31. However, if you deposited all FUTA tax when due, you have until February 10 to file. If the due date for filing a return falls on a Saturday, Sunday or legal holiday, you may file the return on the next business day. The term legal holiday means any legal holiday in the District of Columbia. For a list of legal holidays, see Chapter 11 of Publication 15, (Circular E), Employer's Tax Guide.
Although Form 940 covers a calendar year, you may have to deposit your FUTA tax before you file your return. If your FUTA tax liability is more than $500 for the calendar year, you must deposit at least one quarterly payment. If your FUTA tax liability is $500 or less in a quarter, carry it forward to the next quarter. Continue carrying your tax liability forward until your cumulative FUTA tax liability is more than $500. At that point, you must deposit your FUTA tax for the quarter. Deposit your FUTA tax by the last day of the month after the end of the quarter. If your FUTA tax liability for the next quarter is $500 or less, you are not required to deposit your tax again until the cumulative amount is more than $500. If your total FUTA tax liability for the year is $500 or less, you can either deposit the amount or pay the tax with your Form 940 by January 31.
If you are required to be make a deposit on a day that is not a business day, the deposit is considered timely if you make it by the close of the next business day. A business day is any day other than a Saturday, Sunday, or legal holiday. For example, if you are required to make a deposit on a Friday and Friday is a legal holiday, the deposit will be considered timely if you make it by the following Monday (if that Monday is a business day).
Once your FUTA tax liability for a quarter (including any FUTA tax carried forward from an earlier quarter), is more than $500, you must deposit the tax by electronic funds transfer. Generally, you make electronic fund transfers by using the Electronic Federal Tax Payment System (EFTPS); visit EFTPS.gov. Refer to Publication 966 (PDF), Electronic Federal Tax Payment System, A Guide to Getting Started for electronic federal tax payment system information, and Publication 15 for more information on deposit rules.
Page Last Reviewed or Updated: December 22, 2014