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 farmworkers employees test.
Under the general test, you're subject to FUTA tax on the wages you pay employees who aren't household or agricultural employees and must file Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return for 2019 if:
- You paid wages of $1,500 or more to employees in any calendar quarter during 2018 or 2019, or
- You had one or more employees for at least some part of a day in any 20 or more different weeks in 2018 or 20 or more different weeks in 2019. Count all full-time, part-time, and temporary employees.
If a business was sold or transferred during the year, each employer who meets one of the conditions above must file Form 940. However, don't include any wages paid by the predecessor employer on your Form 940 unless you're a successor employer. For details, see "Successor employer" in the Instructions for Form 940 . If you won't be liable for filing Form 940 in the future, see "Final: Business closed or stopped paying wages" under Type of Return in the Instructions for Form 940 .
For the household employees and farmworkers tests, see Chapter 14 in Publication 15, (Circular E), Employers Tax Guide. Additional information for household employers is available in Publication 926, Household Employer’s Tax Guide and Topic No. 756. Additional information for agricultural employers is available in Publication 51, (Circular A), Agricultural Employer’s Tax Guide and Topic No. 760, Reporting and Deposit Requirements for Agricultural Employers.
FUTA tax rate: 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.
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're entitled to the maximum 5.4% credit, the FUTA tax rate after credit is 0.6%. Generally, you're entitled to the maximum credit if you paid your state unemployment taxes in full on time, and the state isn't 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 hasn't 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; see FUTA Credit Reduction for more information. 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 Schedule A (Form 940), Multi-State Employer and Credit Reduction Information . You must use Schedule A (Form 940) if you paid wages to employees in more than one state or if you paid wages in any state that's subject to credit reduction.
When to File?
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 in Publication 15, (Circular E), Employer's Tax Guide.
When and How Must You Deposit Your FUTA Tax?
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're 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're required to make a deposit on a day that's 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're 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). Refer to Publication 966, 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.