How To Fill Out Form 940?

Form 940 is a tax form that employers use to report their annual FUTA (Federal Unemployment Tax Act) payroll tax. 

Most employers that have employees are required to file this tax return form (or have a payroll provider e-file it for them).

How much FUTA tax do I have to pay?

The FUTA tax rate has remained unchanged since 2011, but it is always possible that the rate may change, so be sure to stay up to date:

Keep in mind that you only pay this tax on employees—not independent contractors.

You only owe FUTA tax on the first $7,000 you pay to each employee per year (aka the FUTA wage base), excluding any exempt payments. Payments exempt from FUTA include things such as health insurance, life insurance costs, and workers’ compensation.

For example, say you have 10 employees, and you pay all of them more than $7,000 in taxable payments per year. You would multiply the total taxable FUTA wages per employee ($7,000) by the number of employees (10), and then multiply that by the tax rate of 6%.

$7,000 x 10 x 6% = $4,200 in FUTA tax that you would owe for that year.  

However, in most states, you can receive a tax credit that reduces your FUTA tax liability. If you’re in an eligible FUTA tax credit reduction state and you pay your state unemployment tax by the due date, you may be able to get a credit for your FUTA tax for up to 5.4%, meaning you’ll only pay 0.6% in FUTA taxes.

This part can get tricky, so check with a financial expert to see if your business is eligible for this FUTA credit. 

How do I fill out Form 940?

Follow the instructions exactly as they are written. Most of the questions are pretty straightforward, and we’ve listed out the areas where people tend to get stumped below.

Top section

Employer Identification Number: Be sure to use your Employer Identification Number (EIN) here, per the instructions. Do not use your Social Security number or individual taxpayer identification number (ITIN) unless you are a disregarded entity; if so, use the owner’s Social Security number or ITIN—do not use the tax ID of the business. Failure to provide your valid EIN may result in processing delays and/or penalties.

Trade name and address: This one is pretty simple … unless you’ve made a business name or address change. Always contact the Internal Revenue Service (IRS) regarding name and/or address changes. You may need to apply for a new EIN if you’ve changed your business name. See Publication 1635: Understanding Your EIN for more information about updating an EIN. Additionally, you may need to file Form 8822-B if you’ve changed your business address. Always touch base with your tax preparer before you make any changes.

Part 1

Line 1a: In this section, you’ll fill out line 1a by adding the state abbreviation if you paid state unemployment tax in one state. But if you paid it in more than one state, you must instead select the checkbox in line 1b.

If you’re not sure if you’re a multi-state employer—say you have a complicated new situation (like employees live in one place but technically work in another place)—then you’ll want to check in with your tax pro. There are a number of factors to consider in this kind of scenario, like where the employee performs work and the location from which they are managed. 

Line 2 in this section covers the “CREDIT REDUCTION,” if applicable. When the IRS writes something in ALL CAPS it’s eye-catching for sure—and for some of us, it raises blood pressure. Don’t worry. It’s really not so scary or complicated. We’re going to lower the caps when we talk about credit reduction now so that we’re not shouting anymore.

So, how does a state get a credit reduction, and how do you know if your state is impacted? When a state has a credit reduction, it means that it borrowed money from the federal government to pay unemployment benefits and hasn’t paid the feds back yet. For 2025, the Department of Labor has a list of credit reduction areas.

The following states have outstanding federal unemployment benefit loans as of November 10, 2025:

• California

• US Virgin Islands

Part 2

In this section, you only fill out the applicable boxes.

Total payments to all employees means all payments to employees for the calendar year. It doesn’t matter how you paid them (cash, check, or ACH), or how their pay was calculated (hourly or salary), or even whether the payment was exempt from FUTA or not. The amount you enter here is the total amount you paid to employees for services rendered during the calendar year.

Payments exempt from FUTA include some examples of common payments that are exempt from FUTA tax. Exempt categories do change from time to time, so be sure to check for updates every time you file. For instance, from 2017 to 2026, moving expense reimbursements and bicycle commuter reimbursements are no longer exempt from FUTA tax due to the Tax Cuts and Jobs Act. 

• Fringe benefits include sick pay (see IRS Publication 15-A for details) and Section 125 (cafeteria) plan benefits.

• Group-term life insurance: See Pub. 15-B.

• Retirement/pension includes employer contributions to qualified retirement accounts, such as 401(k) plans and SIMPLE IRA plans.   

• Dependent care includes payments up to $5,000 per employee (or $2,500 for those who are married and filing separately) for the care of a qualifying person—such as an employee’s minor children—while your employee is working. See IRS Section 129 for details. 

• Other includes things like non-cash compensation and payments made to family members.

Check out the IRS Form 940 instructions for more details on every section, including exemptions. The remaining sections of Part 2 is a math exercise, so grab your calculator and fill in those boxes.

Part 3

If #9 applies to you, then #10 and #11 will not apply. Leave any section that does not apply blank.

If #10 applies to you, then you have a worksheet to do. Head over to the IRS Form 940 instructions. The worksheet is on page 10.

If #11 applies to you, then you need to enter your total after you complete Schedule A for Form 940.

Part 4

Part 4 asks you to double-check your tax payments/overpayments and do a little math to figure out if you owe the IRS money or if you overpaid.

Part 5

Part 5 asks for your quarterly payments if line 12 was more than $500. This is where you high-five yourself or your finance person for keeping excellent records and sending in those quarterly payments. If line 12 doesn’t match line 17, you’ll need to revisit your earlier calculations.

Part 6

You’re in the homestretch! If you designate a third party in Part 6, they may be able to respond to certain IRS notices and provide any missing or corrected information needed. They will not, however, be authorized to receive your refund check (if that’s applicable to you).

Part 7

You know what to do here. You’ve got this.

When and where do I have to submit Form 940?

Form 940 covers a standard calendar year, and the form and payment are due annually by January 31 for the prior year.

There may be earlier payment deadlines, however.

If your amount of FUTA tax exceeds $500 for the calendar year, you have to make at least one quarterly payment. If you owe less than $500 for any one quarter, you can roll your balance over to the next quarter until you owe at least $500.

If your total FUTA tax liability is less than $500 for the entire calendar year, you can just submit one Form 940 with your payment by the January 31 deadline. If you’ve already paid the full amount due, you can turn the form in as late as February 10.

If you file late, the penalty is typically 5% per month of the unpaid balance due. More details about penalties and interest are available on IRS Notice 746.

To file and make a payment online, you can use the IRS Electronic Funds Withdrawal (EFW) system or the Electronic Federal Tax Payment System (EFTPS).

If you’ll be mailing the complete form, the IRS address you’ll use depends on where you’re located and whether you’re including a payment along with your form. For the latter, also submit the payment voucher. To do this, use Form 940-V, which can be found at the end of Form 940. The filing addresses change from time to time, so be sure to double-check the IRS website before mailing your form. (Note: If line 12 shows you owe more than $500, you must use an electronic funds transfer.)

At the time of writing, below are the current IRS mailing addresses to file Form 940:

FAQs

What information do I need to complete Form 940?

To complete Form 940 and calculate your final FUTA tax owed (or overpayments), you’ll need the following information:

• Basic business details (trade name, EIN, and address)

• Total employee wages for the year

• The amount of wages subject to FUTA tax (generally, the first $7,000 per employee)

• Records of state unemployment and federal unemployment taxes paid

• Details on total wages paid in a credit reduction state

When and how do I submit Form 940?

Form 940 is due by January 31 following the end of the tax year, or by February 10 if you paid all FUTA taxes on time. The IRS encourages you to file the form electronically, but it’s also possible to submit a paper form through the mail. 

How do multi-state employers handle FUTA credits and wage reporting on Form 940?

If you operate or pay unemployment taxes in more than one state, you still file one Form 940 that captures all of your combined FUTA-taxable wages. In Part 1, check line 1b to show you paid state unemployment taxes in multiple states. Then complete Schedule A (Form 940) to list each state and report FUTA-taxable wages by state. The worksheet also helps you calculate your state unemployment credit (worth up to 5.4% of FUTA-taxable wages) and any relevant tax for credit-reduction states. Enter the Schedule A total on Form 940 line 11 to finalize your FUTA liability. 

What common mistakes should employers avoid when completing Form 940?

When filling out Form 940, a few common slip-ups can lead to overpaying or trigger IRS notices. Some of the most common mistakes include:

• Missing the deadline. Form 940 is due by January 31 each year (or February 10 in some cases). Late filings can result in penalties and interest. 

• Calculating the wrong wage base. FUTA taxes are calculated on the first $7,000 paid to each employee, and exemptions apply to some types of wages. You may wind up overpaying if you include wages that should be exempt or exceed the wage base.

• Claiming the full tax credit. If you operate in a credit reduction state or paid your FUTA taxes late, then you won’t be able to claim the full tax credit of 5.4%.

• Filing more than one Form 940. File just one Form 940 for each EIN you have, not per state. You can attach Schedule A (Form 940) if you operate or pay unemployment taxes in more than one state.

What records should employers keep to support the amounts reported on Form 940?

Employers must keep payroll and tax filing records for at least four years after the Form 940 due date. These documents include compensation records, state unemployment contributions, tax payments, employee details, and copies of filed tax forms.