21.7.3 Unemployment Taxes

Manual Transmittal

August 18, 2020

Purpose

(1) This transmits revised IRM 21.7.3, Business Tax Returns and Non-Master File Accounts, Unemployment Taxes.

Material Changes

(1) This IRM was revised to reflect the following changes:

IRM Subsection Description
IRM 21.7.3.4.2(4) Updated paragraph content for clarification (SERP Feedback 201904565). IPU 19U1224 issued 11-25-2019.
IRM 21.7.3.4.8(1) Added general claim procedures link for clarification and statute reminder. IPU 20U0446 issued 03-19-2020.
IRM 21.7.3.4.8.1(2) Deleted paragraph regarding the submission of a 2000 Form 940. IPU 19U1224 issued 11-25-2019.
IRM 21.7.3.4.8.3 Added new subsection for exempt organization and government agency tax-exempt inquiries. IPU 20U0446 issued 03-19-2020.
IRM 21.7.3.4.9 Added paragraph to include employment code verification guidance. IPU 19U1224 issued 11-25-2019.
IRM 21.7.3.4.10(2) Updated paragraph content for clarification and the credit reduction state table. IPU 19U1224 issued 11-25-2019.
Exhibit 21.7.3-1 Updated table with the 2019 state unemployment insurance taxable wage base. IPU 19U1224 issued 11-25-2019.
Editorial-type changes Editorial changes have been made throughout the IRM for clarity.

Effect on Other Documents

IRM 21.7.3 dated August 19, 2019 (effective October 1, 2019) is superseded. The following IRM Procedural Updates (IPUs), issued from November 25, 2019 through March 19, 2020, have been incorporated into this IRM: 19U1224 and 20U0446.

Audience

The primary users of this IRM are Wage and Investment employees. The IRM is intended for Customer Account Service issues involving unemployment returns.

Effective Date

(10-01-2020)


Karen A. Michaels
Director, Accounts Management
Wage and Investment Division

Program Scope and Objectives

  1. This section contains information on business master file (BMF) accounts related to the Federal Unemployment Tax Act (FUTA).

  2. Purpose: To provide procedures for resolving taxpayer inquiries (in-person, paper, and phone) and tax account issues regarding unemployment taxes.

  3. Audience: The primary users of this IRM are Customer Service Representatives and Tax Examining Assistants who are assigned unemployment tax program inquiries.

  4. Policy Owner: The policy owner is the Director, Accounts Management, Wage and Investment Division.

  5. Program Owner: The program owner is Process and Program Management (PPM), Accounts Management, Wage and Investment.

  6. Primary Stakeholders: The primary stakeholders are Wage and Investment (W&I), Small Business Self Employed (SBSE), and Large Business and International (LB&I).

  7. Program Goals: Program goals for this type of work are included in the Accounts Management Program Letter as well as IRM 1.4.16, Accounts Management Guide for Managers.

Background

  1. The Federal Unemployment Tax Act (FUTA) provides for cooperation between states and the federal government in the establishment and administration of unemployment insurance. Unemployment insurance is a system which provides benefits for unemployed workers. Unemployment taxes, which are paid to federal and state governments by covered employers, subsidize state administered unemployment insurance programs and create a fund that is used to pay unemployment benefits to unemployed workers.

  2. Employees in the Accounts Management (AM) and Field Assistance (FA) organizations respond to taxpayer inquiries (in-person, phone, and paper) as well as claims, certain applications, internal requests, and transcripts related to Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return.

  3. IRM 21.7.3 provides guidance to AM and FA employees assigned unemployment tax inventory.

Authority

  1. The procedures in this IRM are an attempt to translate a variety of legal and administrative authorities into practical guidance for the Customer Service Representatives and Tax Examining Assistants who are assigned unemployment tax inventory. In addition to all official guidance on general tax matters, the administration of the unemployment tax discussed in this IRM is based primarily on tax law provisions found under U.S. Code, Title 26, Internal Revenue Code, Subtitle C, Chapter 23, Federal Unemployment Tax Act, and related Regulations, Treasury Decisions, Revenue Procedures, Revenue Rulings, Notices, tax forms and instructions, and publications.

  2. Delegated authorities and policy statements related to Accounts Management are found in IRM 1.2.1, Servicewide Policies and Authorities, Servicewide Policy Statements.

Roles and Responsibilities

  1. The Wage and Investment Commissioner has overall responsibility for the policy related to this IRM content.

  2. Account Management’s Process and Program Management Section has responsibility for the information in this IRM, which is published on a yearly basis. The Chief of this team is responsible for ensuring this IRM is timely submitted to publishing each year.

  3. The Director of Accounts Management is responsible for policy related to this IRM.

  4. Additional information is found in IRM 1.1.13.9.4, Accounts Management, and IRM 21.1.1, Accounts Management and Compliance Services Overview.

Program Management and Review

  1. IRM 1.4.16, Accounts Management Guide for Managers, provides guidance for program management and review of programs assigned to Accounts Management.

Program Controls

  1. Goals, measures, and operating guidelines are listed in the annual Program Letter.

  2. Quality data and guidelines for measurement are referenced in IRM 21.10.1, Embedded Quality (EQ) Program for Accounts Management, Campus Compliance, Field Assistance, Tax Exempt/Government Entities, Return Integrity and Compliance Services (RICS) and Electronic Products and Services Support.

Terms/Definitions/Acronyms

  1. The ReferenceNet Legal and Tax Research Service page provides an Acronym Database to research acronyms found within this IRM.

  2. All but the most common acronyms found in this IRM are spelled out when they are used for the first time in a subsection. The following table provides some common acronyms:

    Acronym Description
    BMF Business Master File
    CCC Computer Condition Code
    CIS Correspondence Imaging System
    CSR Customer Service Representative
    EFT Electronic Federal Transfer
    EFTPS Electronic Federal Tax Payment System
    EUP Employee User Portal
    FCP FUTA Case Processing
    FTD Federal Tax Deposit
    FUTA Federal Unemployment Tax Act
    MeF Modernized E-File
    ROFTL Record of Federal Tax Liability
    TAS Taxpayer Advocate Services

Related Resources

  1. IRM 21.2.2-2, Accounts Management Mandated IAT Tools

  2. IRM 4.19.5, Certification of State Federal Unemployment Tax Act (FUTA) Credits

  3. Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return

  4. Instructions for Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return

  5. Publication 15, Circular E, Employer's Tax Guide

  6. Publication 51, Circular A, Agricultural Employer's Tax Guide

Unemployment Taxes Overview

  1. The Federal Unemployment Tax Act (FUTA) provides for cooperation between states and the federal government in the establishment and administration of unemployment insurance. Unemployment insurance is a system which provides benefits for unemployed workers. Unemployment taxes, which are paid to federal and state governments by covered employers, subsidize state administered unemployment insurance programs and create a fund that is used to pay unemployment benefits to unemployed workers.

  2. This IRM section contains instructions for adjusting Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, tax accounts and requesting manual credit certification from state agencies. Only the first $7,000 paid to each employee is subject to FUTA tax. The FUTA tax applies to payments such as:

    • Salaries

    • Wages

    • Commissions

    • Fees

    • Bonuses

    • Vacation allowances

    • Amounts paid to temporary or part-time employees

    • Value of goods, lodging, food, clothing, and other non-cash fringe benefits if not excludable pursuant to IRC 3306 (b)(15)

  3. When taxpayer contact meets the Taxpayer Advocate Service (TAS) criteria (see IRM 13.1.7.2, TAS Case Criteria) and we are unable to resolve the taxpayer’s issue the same day, refer the taxpayer to TAS. The definition of “same day” is within 24 hours. "Same day" cases include cases you can completely resolve in 24 hours as well as cases in which you have taken steps within 24 hours to begin resolving the taxpayer’s issue (see IRM 13.1.7.4, Same Day Resolution by Operations). Do not refer cases to TAS unless they meet TAS criteria or the taxpayer asks for TAS assistance. The Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), is used to forward cases to TAS. If a taxpayer prefers to contact TAS directly, provide the TAS toll-free number 877-777-4778.

    Note:

    All IRS employees must be familiar with TAS criteria and the Taxpayer Bill of Rights (TBOR). For more information about TBOR, refer to Pub 1, Your Rights as a Taxpayer, and the TAS Taxpayer Bill of Rights link.

Unemployment Taxes Research

  1. This section provides research procedures for unemployment taxes.

Form 940 Filing Requirements

  1. Form 940 is an annual return covering the period January 1 through December 31.

    1. It is due on or before January 31, following the close of the calendar year. If the employer deposits all Federal Unemployment Tax Act (FUTA) tax when due, the due date is extended until February 10, following the close of the calendar year.

    2. The Master File Tax (MFT) is 10.

    3. The tax class is 8. The tax class identifies amounts reported to the Treasury and transferred to various trust funds. The tax class is not used to input an adjustment.

  2. Employers (other than agricultural or household employers) are liable to file if they meet either of the tests below:

    1. They paid wages of $1,500 or more in any calendar quarter for the current or preceding year.

    2. They had one or more employees (including full-time, part-time, and temporary) at any time in each of twenty calendar weeks during the current or preceding year.

  3. Agricultural employers are liable to file if they meet either of the tests below:

    1. They paid cash wages of $20,000 or more to agricultural workers in any calendar quarter in the current or preceding calendar year.

    2. They employed 10 or more agricultural workers for some portion of a day during any 20 different weeks in the current or preceding calendar year.

    Note:

    Aliens admitted to the U.S. on a temporary basis to perform farm work (H-2A Temporary Agricultural Workers) are counted to determine if one of the two (agricultural employer) tests set forth above are satisfied. Wages paid to H-2A workers are exempt from FUTA tax.

  4. Household employers are liable if they paid $1,000 or more in any calendar quarter during the current or preceding year for work in:

    • A private home

    • A local college club

    • A local chapter of a college fraternity or sorority

    Note:

    To report FUTA tax, household employers must file Schedule H (Form 1040) with their Form 1040 series return, unless they have other non-household employees, in which case the employer may include the household employees' FUTA tax on Form 940 instead. If household employees are included on Form 940, the employer must file the appropriate employment tax return (e.g., Form 941, Employer’s Quarterly Federal Tax Return, Form 943, Employer’s Annual Tax Return for Agricultural Employees, or Form 944, Employer’s Annual Federal Tax Return) to report the household employees' social security, Medicare, and withheld federal income taxes. If a trust is a household employer, the trust must file Schedule H (Form 1040) with Form 1041, unless it has other non-household employees, in which case the trust may include the household employees' FUTA taxes on Form 940 and report their social security, Medicare, and any withheld federal income taxes on Form 941, Form 943 and/or Form 944, respectively.

Deposit Requirements and Payments (Form 940)

  1. For deposit requirements see:

    • Publication 15, Circular E, Employer's Tax Guide

    • Publication 51, Circular A, Agricultural Employer's Tax Guide

    • Instructions for Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return

    • IRM 20.1.4.9, Form 940 Deposit Rules

  2. The Federal Unemployment Tax Act (FUTA) threshold to carry a quarterly tax liability to the next quarter is $500.

  3. Form 940 balance due payments , including balances that are up to 10 years past due, can be made by phone or by using a credit card online. Payments can be made through several authorized third-party service providers who can obtain credit authorization during the transaction and provide a confirmation number as proof of payment. For specific information on business payments made by credit card, see IRM 21.2.1.48.5(7), Credit or Debit Card Payments (Pay by Phone or Internet).

    Reminder:

    A credit card cannot be used to submit a Federal Tax Deposit (FTD). Taxpayers currently required to make a FTD must utilize one of the available Electronic Funds Transfer (EFT) deposit systems. See IRM 20.1.4.2.2, Authorized Deposit Methods, and IRM 21.2.1.47, Electronic Federal Tax Payment System (EFTPS), for more information.

Wages Subject to Federal Unemployment Tax Act (FUTA) Tax

  1. In arriving at the taxable wages subject to FUTA tax, the taxpayer subtracts the following amounts from the total payments made to all employees:

    • Amounts paid to each employee over $7,000

    • Amounts paid which are exempt from FUTA tax

  2. Information on exempt payments can be found in Form 940 Instructions, Publication 15, (Circular E), Employer's Tax Guide, and Publication 15-B, Employers Tax Guide to Fringe Benefits. Form 940 has check boxes to indicate exempt payments.

Contributions Made to the State Unemployment Fund

  1. Contributions are payments which state laws require employers to make to an unemployment fund. These payments are sometimes referred to as "state unemployment taxes" and are contributions only to the extent they are not deducted from the employee's pay.

  2. An employer is permitted to use state unemployment tax contributions as an offset against the federal unemployment tax as a normal credit. Any timely contributions (made by the due date of Form 940) to the state (including the District of Columbia, Puerto Rico, and the U.S. Virgin Islands) unemployment fund increases this credit, which reduces the tax rate on Form 940.

Experience Rates for Additional Credit

  1. Generally, employers are assigned experience rates by the state in which they do business.

    1. The rate is determined by the unemployment record of each employer and is the percentage at which contributions are made to the state unemployment fund.

    2. Employers who stabilize employment are rewarded in the form of reduced experience rates.

  2. The contributions paid according to the state employment insurance laws can be credited against the employer's federal unemployment tax. The credit is limited to 5.4 percent of the federal taxable wages.

Federal Tax Rate - Federal Unemployment Tax Act (FUTA)

  1. Employers pay FUTA on the first $7,000 of each employee's annual wages. The maximum FUTA tax rate is 6.0 percent (.060).

  2. An employer is allowed two kinds of credit against FUTA tax.

    • Normal credit, based on contributions

    • Additional credit, based on experience rate

Successor Employer - Computer Condition Code (CCC) "5"

  1. If the taxpayer checks box "b" on Form 940 or Form 940-PR, Code and Edit codes the return with a CCC "5" indicating the taxpayer is a successor employer.

  2. This designation indicates the employer is entitled to certain credits based on payments made by the predecessor employer. Refer to Publication 15, (Circular E), Employer's Tax Guide, for more information.

Unemployment Taxes Procedures

  1. This section contains procedures for unemployment taxes.

    Reminder:

    This section attempts to address situations most frequently encountered when working unemployment tax issues. The guidance contained in this and other applicable IRMs cannot address every possible taxpayer inquiry. In some cases, it may be necessary to consult your lead or manager to determine the appropriate action. Elevate any issue or question that cannot be resolved at the site level or could have Servicewide impact to the appropriate Headquarters analyst with program responsibility.

Federal Unemployment Tax Act (FUTA) Certification Program

  1. The IRS uses the FUTA Certification program to determine whether Form 940 or Schedule H (Form 1040) reported state payments were paid into the appropriate state unemployment fund. There are 53 participating agencies, which includes the 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Small Business Self Employed (SB/SE) Campus Compliance employees certify state payments (credits) using the procedures in IRM 4.19.5, Certification of State Federal Unemployment Tax Act (FUTA) Credits.

  2. The FUTA Case Processing (FCP) system is used by the SB/SE FUTA team to reconcile cases determined to have discrepancies. The state payment data is downloaded to the FCP system and the system identifies potential tax increases and decreases. The download to the FCP system is identified by the FUTA Release Year. The October 2019 download is identified as the FUTA Release 2017.

Federal Unemployment Tax Act (FUTA) Certification Program - Discrepancy Cases

  1. Discrepancy cases result from the computerized and manual certifications of payments to State Unemployment Insurance Agencies.

  2. Form 940 adjustments processed under this program are recognized by the following non-refile blocking series (BS):

    • 50 for Non-zero certification (when the State certifies wages/contributions)

    • 51 for Zero certification (when the State certifies no record of wages/contributions)

  3. The program issues the following letters:

    • Letter 4010C, FUTA Certification - Proposed Increase to FUTA Tax

    • Letter 4011C, FUTA Certification - Proposed Decrease to FUTA Tax

    • Letter 380C, State Certification Tax Adjustment Explained: Form 940/Schedule H

  4. If the taxpayer received a FUTA discrepancy letter or notice and calls an Accounts Management phone application instead of contacting the FUTA contact provided in the letter or notice, follow the referral guidance under IRM 4.19.5.4.12, Customer Service Representative (CSR) Information.

  5. Route all correspondence and amended returns (both numbered and unnumbered) regarding a FUTA assessment to:

    Cincinnati FUTA Case Processing
    Stop 815G
    7940 Kentucky Drive
    Florence, KY 41042

Manual Certification Required/Not Required

  1. Manual certification is required when the transaction code (TC) 150 is an IRC 6020 (b) assessment and

    1. The taxpayer is computing the tax at a rate less than the full applicable rate of 6.0 percent. OR

    2. The taxpayer is filing a zero return and BMFOLU shows wages in the Processed (W2) column for the TC 150 IRC 6020(b) tax period.

    Note:

    See IRM 21.7.9.4.1.6, Duplicate Filing Conditions Involving Returns Prepared Under IRC Section 6020(b), for additional procedures on adjusting IRC 6020(b) accounts.

  2. If a manual certification is required, follow local procedures to prepare Form 940-B, Request for Verification of Credit Information Shown on Form 940, and forward to your Federal Unemployment Tax Act (FUTA) liaison. However, if the taxpayer is an agent or contractor for the state, IRC 7602(c) requires the taxpayer to be notified in advance when a third-party contact is necessary to determine tax liability (this should occur very rarely). If this is the case, the steps below are mandatory:

    1. Call the taxpayer to advise of the recertification request being sent to the state.

    2. Document the case file with the name of the person contacted (person must have authority to prepare taxpayer's Form 940) and the time and date you spoke with that person.

      Note:

      If the taxpayer cannot be contacted by phone, Letter 3345C, Third Party Contact Letter (FUTA), must be sent to the taxpayer. The Form 940-B cannot be sent until 10 days after the Letter 3345C is initiated. (If the taxpayer is contacted by phone, the Form 940-B can be sent immediately after contact.)

    3. Prepare Form 12175, Third Party Contact Report Form, immediately after contacting the taxpayer by phone or by Letter 3345C.

    4. For more information on notification of third party contacts and preparation of Form 12175, see IRM 5.19.5.12, Notification of Third Party Contact.

  3. Manual certification is not required when the transaction code (TC) 150 is an IRC 6020 (b) assessment and

    1. The taxpayer is computing the tax at the full applicable rate.
      OR

    2. The taxpayer is filing a zero return and a TC 599 CC 008 (closed unagreed) is posted on the tax module and CC BMFOLU does not show wages in the Processed (W2) column for that period. If the tax period is not found under CC BMFOLU, use CC IRPTRI to determine whether Forms W-2 were processed for the tax period.
      OR

    3. The taxpayer is filing a zero return and a signed internal request is received from an area office (e.g., from a revenue officer) stating the taxpayer was out of business for the entire tax year(s) of the IRC 6020(b) assessment(s).

  4. If a manual certification is not required, input the adjustment using established procedures.

Federal Unemployment Tax Act (FUTA) Liaison Responsibilities
  1. When taxpayers are contacted by the Automated 6020B Program, the notification provides response instructions. If the taxpayer doesn’t agree with the proposal, they have 45 days to prepare tax returns that show the taxpayer’s correct tax liability. If the taxpayer files a Form 940 claiming a reduced rate of assessment, they must attach a copy of the state certification showing the contributions paid to the state.

  2. If the certification is not attached, the IRS attempts to secure a certification as a customer service courtesy. Currently, the IRS system security cannot allow email delivery from a state agency. The certification must be faxed or mailed to the IRS. The preferred delivery method is fax. Designated employees act as liaisons between the IRS and State Labor Department Agencies or Workforce Commissions. These employees are responsible for submitting the completed Form 940-B for certification.

  3. Liaisons use the following guidelines for initial and subsequent requests.

    If Then
    Initial request Allow 30 calendar days for response
    No response after 1st request Notate on Form 940-B 2nd request and resubmit. Allow 14 calendar days for response.
    No response after 2nd request Contact the agency representative by phone for certification. Contact information can be found on Servicewide Electronic Research Program (SERP), on the Who/Where tab listed as follows: State Labor Department Form 940 Certification Contacts. Inform the contact of your previous requests and allow three workdays for the requested information.
    The state wants to email the certification Inform the state employee that the IRS can’t accept an email response and request the certification by fax. Suspend the case an additional seven workdays.
    The state wants to mail the certification via the U.S. Postal Service Inform the state we prefer a fax response; however, we can accept a certification by mail. Suspend the case an additional seven workdays.
    The state employee determines the IRS liaison is not authorized to receive the Form 940-C Advise the state employee to send the certification to the taxpayer with instructions to fax the certification to the IRS.
    60 days has elapsed since the initial request Notate the Form 940-B as a No Response.

    Note:

    Ensure the Correspondence Imaging System (CIS) History Notes indicate the IRS made 3 attempts to secure the recertification from the state(s).

  4. When the recertification is received from the State or a Form 940-B is notated No Response, forward it to the initial requestor for case resolution. See IRM 21.7.3.4.8, Claims and Requests for Adjustments (Form 940), for additional information.

  5. When the case involves multiple states and there are several no responses after the time frame in paragraph two above, we are unable to adjust the taxpayer’s tax liability until all the state certifications are received for review. The liaison takes the following actions:

    • Update the CIS History Notes to identify the missing states.

    • Return the case to the initial requestor and advise the case is not workable due to No Response/Multiple States.

  6. If there is a trend of no response from a state, report the issue to Accounts Management Headquarters through the campus Planning and Analysis staff.

Additional Credit Computation

  1. Employers who have been granted a state experience rate lower than 5.4 percent by a state for all or part of a year are entitled to an "additional credit." The additional credit is equal to the difference between:

    1. Maximum allowable federal credit (taxable federal wages times the federal credit rate) and,

    2. State taxable wages multiplied by the employer's experience rate, if rate is less than maximum federal credit rate

  2. Credit for contributions paid late (after the due date of the Form 940) is limited to 90 percent of the amount which would have been allowed as a credit for such contributions if such contributions were paid by Form 940 due date.

  3. A worksheet is provided in the Form 940 instructions. The worksheet is used to compute the credit if some of the wages paid by the employer were not subject to state unemployment tax or if the employer paid any state unemployment tax late.

Multiple State Cases

  1. If taxable Federal Unemployment Tax Act (FUTA) wages were paid to employees in more than one state, Form 940 filers must complete and file Schedule A, Multi-State Employer and Credit Reduction Information. The Schedule A is also used to report wages paid in any state subject to credit reduction. See IRM 21.7.3.4.10, Credit Reduction States, for additional information.

  2. The tax liability for multiple state cases is computed the same as single state cases; however, the additional credit is computed for each individual state. See IRM 21.7.3.4.4, Additional Credit Computation, for computation procedures. After the tax liability is computed for each individual state, the results are combined into one amount and only one tax item reference code is used to adjust the tax liability. The primary state is used to adjust the tax. IRM 21.7.3.4.7, Item Reference Codes (Form 940), provides item reference code determination guidance.

  3. The primary state wage item reference code is used for all wages not associated with a credit reduction state. The wages of a credit reduction state must always be adjusted for the exact amount of the change. When the credit reduction state wages have been adjusted and there are left-over wages, the left-over wages are adjusted under the primary state wage item reference code. If unable to determine the primary state, adjust the state indicating the highest wages paid. If unable to determine the state with the highest wages paid, adjust the state listed on the address of record. If the primary state, the state indicating the highest wages paid, and the state listed as the address of record are all credit reduction states, then adjust wages of any state shown on the Schedule A that is not a credit reduction state.

    Example:

    The State of California is a 2017 credit reduction state. The taxpayer is amending total wages by $30,000. There were $10,000 paid in the State of California. The account indicates Nevada is the primary state. The item reference codes for the wages are: WCA for $10,000 and WNV for $20,000. The primary state of Nevada is used for the tax change using item reference code TNV.

    Reminder:

    Recertification is obtained from each state when it meets the criteria in IRM 21.7.3.4.3(1), Manual Certification Required/Not Required.

Aggregate Returns

  1. Only agents of home care service recipients authorized under IRC 3504 may file an aggregate Form 940. See Rev. Proc. 2013-39 and IRB 2013-52 for additional information.

    Note:

    To request authorization to act as an agent for an employer, Form 2678, Employer/Payer Appointment of Agent, is filed with the Service.

  2. Some aggregate returns are distinguished by showing the following in the entity area or noted on the tax return:

    • "State"

    • "City"

    • "County"

    • "Notice 2003-70"

    • "Fiscal Agent"

    • "Fiscal intermediary"

    • "Employer Agent"

    • "Choreworkers"

    See IRM 3.11.154.3.17, Aggregate Form 940 Returns, for additional information.

  3. Beginning with the annual Form 940 for 2010, aggregate filers must complete Schedule R (Form 940), Allocation Schedule for Aggregate Form 940 Filers, and submit with the Form 940. See the following subsection for additional information regarding the Form 940 (Schedule R).

Schedule R (Form 940): Allocation Schedule for Aggregate Form 940 Filers
  1. The IRS has developed Schedule R (Form 940), Allocation Schedule for Aggregate Form 940 Filers, that allocates the aggregate wage, tax, credit, deposit, and payment amounts reported on Form 940.

  2. Schedule R provides the IRS with client-specific information to support the totals reported by an agent on the aggregate return. It includes an allocation line for each client showing a breakdown of its wages and tax liability for the tax period. The instructions for each Schedule R explain all the information a "Section 3504 Agent" must provide with respect to each client reported on the aggregate form. When a Form 940 is processed and a Schedule R (Form 940) is attached, a Schedule R Indicator (SRI) is posted to master file.

  3. If a taxpayer filed a Schedule R (Form 940) with the original return and a correction is necessary, then a revised Schedule R (Form 940) is required with the amended Form 940. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    If a taxpayer is required to file a Schedule R (Form 940) and does not do so with the original return, the taxpayer may submit another Form 940 with a Schedule R (Form 940) attached, which may create a Transcript (TRNS) 193. If so, follow existing procedures in IRM 21.7.9, BMF Duplicate Filing Conditions.

  4. The chart below indicates procedures for most Schedule R inquiries:

    If And Then
    Loose Schedule R is received The original return has posted (regardless if a Schedule R indicator is present) No additional action is needed.

    Note:

    If working a Correspondence Imaging System (CIS) case, add a case note to identify the loose schedule and close the CIS case.

    Loose Schedule R is received The original return has not posted and the original processing time for Form 940 has not elapsed Suspend loose schedule pending posting of original return. See IRM 21.3.3.5.2, Loose Forms/Schedules, for more information.
    Loose Schedule R is received The original return has not posted and the original processing time for Form 940 has elapsed Contact taxpayer preferably by phone, to obtain a signed copy of the original return and suspend case for 40 days.
    1. If the taxpayer replies with a copy of the original return, process accordingly.

    2. If the taxpayer does not reply, reject the Schedule R back to the taxpayer requesting the original Form 940 (and accompanying Schedule R) be filed.

    Loose paper Schedule R is received There is not enough information to identify the taxpayer or scan into CIS Destroy the loose paper Schedule R.

Item Reference Codes (Form 940)

  1. All increases and decreases in tax must have item reference codes showing the tax associated with the state where the adjustment is indicated.

    1. The tax item reference code amount must equal the TC 29X tax adjustment.

    2. The three-digit item reference code for the tax portion of the adjustment is comprised of a "T" followed by the two-digit state code.

  2. If adjustment is due to an increase or decrease in wages, an item reference code for wages is also required. The three-digit item reference code for the wage portion is comprised of "W" followed by the two-digit state code.

  3. If more than one state is involved, input the adjustment using the primary state. If unable to determine the primary state, adjust the state which indicates the highest wages paid. If unable to determine the state with highest wages paid, adjust the state listed on the address of record. Caution is used however, if any of the states being amended were a credit reduction state for that particular tax year. In that case, each credit reduction state wage adjustment must be input. See IRM 21.7.3.4.5, Multiple State Cases, for an example.

  4. If no increase or decrease to tax or wages is made, item reference codes are not needed.

Claims and Requests for Adjustments (Form 940)

  1. Consider prior adjustments on the account and follow the guidance under IRM 21.5.3.4, General Claim Procedures.

    Reminder:

    Statute year claims require careful review. IRM 21.5.3.4.3, Tax Decrease and Statute Consideration, provides additional detail.

  2. Process responses to manual certification requests as follows:

    If Then
    Certification request indicates no payments were made to the state Do not adjust to taxpayer's figures. Input TC 290 .00 to release the -A freeze and send Letter 380C, State Certification Tax Adjustment Explained: Form 940, to inform the taxpayer the State could not verify the reported contributions.
    Certification request indicates payments were made to the state Complete the worksheet in the Form 940 instructions to verify the correct tax and adjust accordingly. See IRM 21.7.9.4.1.6, Duplicate Filing Conditions Involving Returns Prepared Under IRC Section 6020(b), for guidance regarding 6020(b) cases. If the adjustment is different than what the taxpayer expected, correspond with Letter 380C explaining the changes.
    The campus FUTA Liaison notates the Form 940-B with No Response or the case file as not workable due to No Response / Multiple States Do not adjust to the taxpayer’s figures. Close the case by releasing the -A freeze, uploading the received Form 940-C documents to the Correspondence Imaging System case file, and sending a Letter 380C informing the taxpayer:
    • The IRS contacted each state reported on the Form 940 and requested a state certification showing the contributions paid to the state.

    • Since we did not receive a response from the state(s) of [insert missing state(s)], we are unable to adjust the tax liability based on the tax return.

    • The taxpayer may request a state certification from the missing state(s).

    • If the missing state certifications are sent to the IRS by fax or mail, we will review them and make the appropriate changes to the tax liability.

    Note:

    Before closing the case as not workable, review the account history to determine whether the Federal Unemployment Tax Act (FUTA) liaison received any of the missing state certifications.

  3. Interest on a refund is not allowable when taxpayer reduces the tax because of an increase in state credits.

    1. Input a TC 291 with a secondary TC 770 .00 to restrict credit interest.

    2. Only input TC 770 .00 when there is a decrease to tax and no change to wages.

    Note:

    See IRC 6413(d) for additional information.

  4. Since master file is only able to compute a failure to deposit (FTD) penalty on the initial Record of Federal Tax Liability (ROFTL) supplied with the original return (Form 940, Part 5), we must determine whether a FTD penalty is applicable whenever an amended/supplemental return is filed or when a revised ROFTL schedule is submitted by the taxpayer. The new ROFTL requires a manual recalculation and update of the penalty. If deposits are made late, not made in sufficient amounts, made directly to the IRS (e.g., sending a check with a tax return or paying by credit card), or not made using EFT, a FTD penalty may be imposed on the module. IRM 20.1.4, Failure to Deposit Penalty, provides Form 940 deposit requirements, penalty calculation guidance using Command Code FTDPN, and instructions for using transaction code 18X to assess or adjust a FTD penalty.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Claims Involving Indian Tribal Governments
  1. Under current law, federally recognized Indian tribal governments (ITG) and their subdivisions, subsidiaries, and wholly-owned business enterprises are exempt from Federal Unemployment Tax Act (FUTA) and can elect to participate in a state unemployment fund (SUTA), or in a reimbursement program. The SUTA exemption is an entity-by-entity election. If an election is made, the entity is exempt from FUTA only if it is a full participant in SUTA or in a reimbursement option with the state, and all SUTA liabilities are fully paid. See Announcement 2001-16, 2001-I C.B.715.

Railroad Retirement Board (RRB) Determinations
  1. If an amended Form 940 mentions RRB determinations, see IRM 21.7.2.6.5.8, RRB Employer Status Determinations.

Exempt Organization (EO) and Government Agency Tax-Exempt Inquiries
  1. IRC 501(a) non-profit organizations exempt from Federal Unemployment (FUTA) tax are assigned an Employment Code (EC) W. State and local government agencies not subject to FUTA tax are assigned an EC G. The EC is verified with Command Codes ENMOD and BMFOLE.

  2. Per IRM 21.7.7.6.21, FUTA Tax and Exempt Organizations, paragraph (5), the EO Accounts function refers Form 940 Employment Code W abatement requests to the Ogden Accounts Management Campus.

  3. If an organization submits correspondence or an amended Form 940 saying it is exempt from filing and paying the FUTA tax liability, verify the EC and take the following action:

    If And Then
    The EC is W or G The tax module reports tax assessed (TC 150) and taxable wages,
    1. Abate the FUTA tax assessed and remove the taxable wages. Follow normal adjustment procedures.

    2. Delete the Form 940 filing requirements.

    3. Issue Letter 858C to notify the organization it is not liable to file Form 940.

    The EC is W or G Deposits are posted to the tax module with no TC 150 (no tax assessment),
    1. Verify the deposits were submitted by the organization.

    2. Delete the Form 940 filing requirements.

    3. Issue a manual refund. Follow normal manual refund procedures.

    4. Issue Letter 858C to notify the organization it is not liable to file Form 940.

    The EC is not W or G, The abatement request was initiated by EO Accounts
    1. Do not abate the tax liability.

    2. Contact the request sender and request exempt status verification. EC verification is required by IRM 21.7.7.6.21(5).

    The EC is not W or G The organization claims an application was submitted for a determination,
    1. Do not abate the tax liability.

    2. Contact EO Accounts through the appropriate AM P & A analyst to verify the application status. Note: Organization are not subject to FUTA tax during the application period for exempt status.

  4. If EO Accounts contact is necessary, follow the EO response guidance below:

    If And Then
    EO Accounts determined the organization is exempt The tax module reports tax assessed (TC 150) and taxable wages,
    1. Abate the FUTA tax assessed and remove the taxable wages. Follow normal adjustment procedures.

    2. Delete the Form 940 filing requirements.

    3. Issue Letter 858C to notify the organization it is not liable to file Form 940.

    4. Update the CIS history to indicate EO Accounts verified the tax-exempt status of the organization and the EC will be updated.

    EO Accounts determined the organization is exempt Deposits are posted to the tax module with no TC 150 (no tax assessment),
    1. Verify the deposits were submitted by the organization.

    2. Delete the Form 940 filing requirements.

    3. Issue a manual refund. Follow normal manual refund procedures.

    4. Issue Letter 858C to notify the organization it is not liable to file Form 940.

    5. Update the CIS history to indicate EO Accounts verified the tax-exempt status of the organization and the EC will be updated.

    EO Accounts determined the organization is NOT exempt,
    1. Reject the adjustment request.

    2. Advise the organization to contact the TE/GE toll free number 877-829-5500 to confirm or request exempt status.

Form 3465 Adjustment Requests from Entity (Form 940)

  1. Entity verifies whether taxpayer is subject to unemployment tax and forwards Form 3465, Adjustment Request, to Accounts Management (AM) for processing. See IRM 21.7.11.4.2(6), CP172/192 - Form 3465, Request for Adjustment, for processing procedures.

  2. If the account Employment Code (EC) does not show a F, T, or W, contact the sender and advise the EC must be updated to the appropriate code before the requested adjustment is input by AM. The EC is displayed under Command Codes ENMOD and BMFOLE.

Credit Reduction States

  1. Employers that pay their state unemployment tax timely and in full receive a 5.4 percent credit against their Federal Unemployment Tax Act (FUTA) tax. However, the credit is reduced when a state has taken loans from the federal government to meet its state unemployment benefit liabilities and has not repaid these loans within the allowable time frame. A state that has not repaid money it has borrowed from the federal government is called a credit reduction state. The reduction is 0.3 percent for the first year and an additional 0.3 percent for each succeeding year until the loan is repaid.

    Exception:

    States passing their fifth consecutive January 1st with an outstanding balance is subject to an additional credit reduction under FUTA 3302(c)(2)(C) (Benefit Cost Ratio (BCR) add-on). A waiver of this add-on is provided under 20 CFR 606.25 for states that meet the specified criterion.

  2. The Department of Labor evaluates the credit reduction status of each state and jurisdiction. The credit reduction status for each state and jurisdiction is released in November prior to the Form 940 filing due date. The following table provides the current credit reduction percentages, which includes any applicable BCR.

    State/Jurisdiction Abrv 2016 2017 2018 2019
    California CA .018 .021
    Virgin Islands VI .018 .021 .024 .027

    Note:

    See IRM 3.12.154-14, Credit Reduction States and Rates, or archived copies of IRM 21.7.3 for credit reduction states prior to 2016.

  3. Any employer reporting wages paid in a credit reduction state/jurisdiction must use Schedule A, Form 940 to compute the tax.

    Note:

    If there are no credits for state unemployment tax, the credit reduction is not applicable and tax is computed at the maximum FUTA rate.

  4. If an adjustment is the result of a change to the total taxable wages (not credit for payments made to the State), the amount shown on the return for credit reduction must also be adjusted, using the appropriate credit reduction factor for the applicable State and year.

    1. The reduced credit increases the federal tax liability.

    2. The credit reduction portion of tax is not required to be deposited until the due date of the Form 940. See IRM 20.1.4.9, Form 940 Deposit Rules, for more information. If questioned by the taxpayer, instruct them to report the additional credit reduction amount with the fourth quarter's liability.

State Certified Wages Less Than Federal Taxable Wages

  1. When state certified wages are less than federal taxable wages reported on Form 940 and the net tax discrepancy is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. Calculate the gross federal tax on the federal wages.

    2. Calculate the allowable state credit on the state wages.

State Certified Wages Exceed the Federal Taxable Wages

  1. When the state taxable wages are $4000 or more than the federal taxable wages and the state wage base is the same as the federal wage base (Exhibit 21.7.3-1, State Unemployment Insurance Taxable Wage Bases):

    1. Increase the federal taxable wages to match the state taxable wages.

    2. Calculate the net tax liability (Line 10 Worksheet) with the adjusted wage amounts.

    3. If the net tax discrepancy is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡, accept the taxpayer’s figures.

    4. If the net tax discrepancy is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡, adjust the tax and send the taxpayer an explanation with Letter 380C.

IRC 127 Claims

  1. A minimal number of claims are received because of the permanent extension of IRC 127. Claims are allowed without requesting recertification. See IRM 21.7.2.5.9, IRC 127, Educational Exclusions, for more information.

Schedule H Federal Unemployment Tax Act (FUTA) Erroneously Reported

  1. Some taxpayers erroneously report Federal Unemployment Tax Act (FUTA) tax on both Schedule H, Form 1040, Form 1041, and on Form 940. Others report the tax on Form 940 instead of Schedule H.

  2. Use the table below to adjust these accounts.

    If Then
    Tax is reported on both Schedule H (MFT 30/05) and Form 940 (MFT 10) 1. Delete portion of FUTA tax from MFT 10.
    2. Transfer any payments intended for Schedule H FUTA tax from MFT 10 to MFT 30/05. (See Note below table.)
    3. Inform taxpayer of corrections made.
    4. Delete filing requirements if appropriate.
    Tax is reported on Form 940 only 1. Leave the assessment on MFT 10.
    2. If payments on MFT 30 were intended for FUTA assessment, transfer to MFT 10. (See Note below table.)
    3. Abate applicable penalties and interest if the necessary payment(s) was received by ≡ ≡ ≡ ≡ ≡ ≡ of the following year.
    4. If payment(s) was not received by ≡ ≡ ≡ ≡ ≡ ≡ ≡ manually adjust penalties and interest based on the correct due date of April 15.
    Tax is reported on Schedule H (MFT 30/05) only 1. Leave assessment on MFT 30/05.
    2. If payments on MFT 10 are intended for Schedule H, transfer to MFT 30/05. (See Note below table.)
    3. Delete filing requirements on MFT 10, if appropriate.
    Tax is erroneously reported on both Form 940 and Form 941 or Form 944 See IRM 21.6.4.4.8.12, BMF Form 941, Employer's Quarterly Federal Tax Return, Filed Instead of IMF Schedule H, Household Employment Taxes.

    Note:

    If unable to ascertain which payments on MFT 10 or 30/05 were intended for account where assessment is being made, contact taxpayer (preferably by telephone) to determine which payments need transferred.

Form 940 Electronic Filing

  1. Information regarding Form 940 electronic filing options is provided in Pub 4163, Modernized e-File (MeF) Information for Authorized IRS e-File Providers for Business Returns, and IRM 3.42.4, IRS e-file for Business Tax Returns.

  2. All e-filed Forms 940 are recognized on TXMOD by their unique Filing Location Codes (FLC)/Document Codes (Doc Codes). See IRM 3.42.4.9.2.1, Researching e-file BMF Identification Codes, paragraph (12), for more detail.

  3. IRM 3.42.4.15, Handling e-file Inquiries, contains a list of contacts and telephone numbers which are provided to callers who need assistance with electronic filing issues.

State Unemployment Insurance Taxable Wage Bases

State 2019 2018 2017 2016
Alabama 8,000 8,000 8,000 8,000
Alaska 39,900 39,500 39,800 39,700
Arizona 7,000 7,000 7,000 7,000
Arkansas 10,000 10,000 12,000 12,000
California 7,000 7,000 7,000 7,000
Colorado 13,100 12,600 12,500 12,200
Connecticut 15,000 15,000 15,000 15,000
Delaware 16,500 16,500 18,500 18,500
District of Columbia 9,000 9,000 9,000 9,000
Florida 7,000 7,000 7,000 7,000
Georgia 9,500 9,500 9,500 9,500
Hawaii 46,900 45,900 44,000 42,200
Idaho 40,000 38,200 37,800 37,200
Illinois 12,960 12,960 12,960 12,960
Indiana 9,500 9,500 9,500 9,500
Iowa 30,600 29,900 29,300 28,300
Kansas 14,000 14,000 14,000 14,000
Kentucky 10,500 10,200 10,200 10,200
Louisiana 7,700 7,700 7,700 7,700
Maine 12,000 12,000 12,000 12,000
Maryland 8,500 8,500 8,500 8,500
Massachusetts 15,000 15,000 15,000 15,000
Michigan 9,000 9,000 9,500 9,500
Minnesota 34,000 32,000 32,000 31,000
Mississippi 14,000 14,000 14,000 14,000
Missouri 12,000 12,500 13,000 13,000
Montana 33,000 32,000 31,400 30,500
Nebraska 9,000 9,000 9,000 9,000
Nevada 31,200 30,500 29,500 28,200
New Hampshire 14,000 14,000 14,000 14,000
New Jersey 34,400 33,700 33,500 32,600
New Mexico 24,800 24,200 24,300 24,100
New York 11,400 11,100 10,900 10,700
North Carolina 24,300 23,500 23,100 22,300
North Dakota 36,400 35,500 35,100 37,200
Ohio 9,500 9,500 9,000 9,000
Oklahoma 18,100 17,600 17,700 17,500
Oregon 40,600 39,300 38,400 36,900
Pennsylvania 10,000 10,000 9,750 9,500
Puerto Rico 7,000 7,000 7,000 7,000
Rhode Island 23,600 24,500 22,400 22,000
South Carolina 14,000 14,000 14,000 14,000
South Dakota 15,000 15,000 15,000 15,000
Tennessee 7,000 7,000 8,000 8,000
Texas 9,000 9,000 9,000 9,000
Utah 35,300 34,300 33,100 32,200
Vermont 15,600 17,600 17,300 16,800
Virgin Islands 26,500 24,400 23,500 23,000
Virginia 8,000 8,000 8,000 8,000
Washington 49,800 47,300 45,000 44,000
West Virginia 12,000 12,000 12,000 12,000
Wisconsin 14,000 14,000 14,000 14,000
Wyoming 25,400 24,700 25,400 25,500