IRS Form 940 Mailing Address for 2022
When you file your Form 940, you may be eligible for a credit of up to 5.4 percent of FUTA taxable wages if you paid wages due to state unemployment tax. The FUTA tax rate after the credit is 0.6 percent if you qualify for the maximum 5.4 percent credit.
If you paid your state unemployment taxes in full and on schedule, and the state was not declared to be a credit reduction state, you are generally entitled to the maximum credit.
Many additional obligations and complications arise from the moment you recruit your first W-2 employee and start running payroll for your company. There's a lot to sort out, from payroll forms to employment taxes, and if you went to the Internal Revenue Service (IRS) website for answers, you're probably still puzzled and hesitant.
Table of contents
- What exactly is Form 940?
- What distinguishes Form 940 from Form 941?
- Who is required to file Form 940?
- When and how do you have to pay the FUTA tax?
- Why does the IRS require businesses to file Form 940?
- What exactly is the FUTA tax?
- Do you have to file Form 940?
- How to Complete Form 940?
- How much state unemployment (SUTA) tax did you pay last year?
- When should you file Form 940?
- How to fill out Form 940 and pay your FUTA taxes?
- When and where should the payment be sent?
- What is Form 940's Purpose?
- When Do You Have to Pay Your FUTA Tax?
- How do you calculate your quarterly FUTA tax liability?
- How Should You Pay Your FUTA Tax?
- Key Takeaways
What exactly is Form 940?
Simply put, Form 940 is an annual document that the IRS receives from businesses. The document is intended to assist small businesses and the IRS in reaching an agreement on the amount of Federal Unemployment Tax (FUTA) payable.
The federal unemployment tax annual report is IRS Form 940. Employers are responsible for reporting and paying unemployment taxes to the IRS on behalf of their employees. They don't deduct these taxes from employee pay, but they must set aside the necessary funds and report them on Form 940.
The Federal Unemployment Tax Act (FUTA) works in tandem with state unemployment systems to offer compensation to persons who have lost their jobs due to no fault of their own. The law permits the government to tax employers based on employee wages in order to fund these benefits, and it also compels companies to pay FUTA taxes and report them on Form 940.
Employers fill out the form to record the salaries they paid to full-time and part-time (W-2) employees over the course of the year. All salaries must be recorded, even if the FUTA tax is only computed up to $7,000 per employee. The FUTA tax is then computed based on the wages subject to the tax, resulting in the amount owed to the IRS by the business.
The IRS Form 940 calculates a company's federal unemployment tax liability for the prior year. The form is also used to figure out how much unemployment tax you owe for the previous year, as well as any underpaid or overdue unemployment taxes.
What distinguishes Form 940 from Form 941?
Form 940, on the other hand, is filed once a year and only reports an employer's FUTA taxes. Form 941, on the other hand, is a quarterly report that details federal income tax withholding and Federal Insurance Contributions Act (FICA) levies.
The main distinction is that Form 941 is used to record withholding and shared taxes (taxes split 50/50 between the employee and the employer). The FUTA tax, which is paid exclusively by the employer, is reported on Form 940.
Small employers have a yearly FICA and withholding tax due of less than $1,000 and signed IRS approval to file annually utilise it instead of Form 941. It's only filed once a year, like Form 940, but it just reflects FICA and withholding taxes, not FUTA.
Who is required to file Form 940?
Most businesses are required to pay both a federal (FUTA) and a state-level unemployment tax. A general test, a home employers test and an agricultural employers test are used to establish if you must pay FUTA tax.
If you meet the general requirement, you must file Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return for 2021, on the salaries you pay employees who aren't household or farm employees.
In any calendar quarter in 2020 or 2021, you paid employees $1,500 or more in wages, or
In any 20 or more different weeks in 2020 or 20 or more different weeks in 2021, you had one or more employees for at least some part of a day. Count all permanent, temporary, and part-time employees.
Each employer who fits one of the qualifications above must file Form 940 if a business was sold or transferred during the year. Unless you're a successor employer, don't enter any salaries paid by the prior business on your Form 940.
The FUTA tax rate is now 6.0 percent. The tax is imposed on the first $7,000 in earnings paid to each employee during the year. The federal or FUTA wage base is commonly referred to as $7,000. Depending on the restrictions of your state, your salary base may be different.
When and how do you have to pay the FUTA tax?
Even though Form 940 is for a calendar year, you may need to deposit your FUTA tax before filing. You must make at least one quarterly payment if your FUTA tax liability for the calendar year exceeds $500. If your FUTA tax liability is $500 or less in a particular quarter, you can carry it forward to the next quarter.
Carry your tax liability forward until you have a total FUTA tax liability of more than $500. At that time, you must deposit your FUTA tax for the quarter. Pay your FUTA tax by the last day of the month following the end of the quarter. If your FUTA tax burden for the following quarter is less than $500, you won't have to deposit your tax again until it surpasses $500.
You have until January 31 to deposit the money or pay the tax with your Form 940 if your total FUTA tax burden for the year is less than $500. If you have to make a deposit on a non-business day, make it before the end of the next business day to be considered timely.
A business day is any day that is not a Saturday, Sunday, or a legal holiday. If you have to make a deposit on a Friday and Friday is a legal holiday, you can make it before Monday.
If your FUTA tax liability for a quarter exceeds $500 (including any FUTA tax carried forward from a previous quarter), you must deposit the tax electronically. Liabilities owed for credit reduction must be included with your fourth quarter deposit in years where credit reduction states exist.
The Tax Cuts and Jobs Act suspends the exclusion for qualified moving expense reimbursements from your employee's income under section 132 and the deduction from their income under section 217, as well as the exclusion for qualified bicycle commuting reimbursements from their income under section 132, beginning after 2017 and before 2026.
As a result, moving expenditures and bicycle commuting reimbursements are not exempt from the FUTA tax during this period. Do not include moving expenditures or bicycle commuting reimbursements on line 4 of Form 940.
Professional employer organisations can participate in a certification programme (PEOs). The IRS was required to establish a voluntary certification scheme for PEOs under the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014. PEOs are often paid a fee based on payroll costs and undertake different payroll administration and tax reporting obligations for their business clients.
Accredited professional employer organisations (CPEOs) must meet certain requirements outlined in sections 3511 and 7705, as well as relevant published guidance, to become and remain certified under the certification programme. The CPEO's and its customers' employment tax liability may be affected by certification as a CPEO.
A CPEO is treated as the employer of any employee who performs services for a CPEO customer and is covered by a contract between the CPEO and the customer (CPEO contract) for employment tax reasons, but only for wages and other compensation paid to the individual by the CPEO. The organisation must apply for CPEO status through the IRS Online Registration System.
Whether the CPEO or a customer of the CPEO made the payment, the CPEO is entitled to a credit for state unemployment tax paid to a state unemployment fund for wages paid to a work site employee. Furthermore, a CPEO is entitled for the additional credit if state legislation allows it to collect and send contributions to the state unemployment fund on behalf of a work site employee.
Outsourcing payroll duties
Even if you hire a third party to handle these tasks, you're still responsible for ensuring that tax returns are filed and deposits and payments are paid. If a third party fails to perform any needed step, you are still liable.
Go to IRS.gov/OutsourcingPayrollDuties for helpful information on outsourcing payroll and related tax obligations, the CPEO is treated as the employer for employment tax purposes, but only for wages and other compensation paid to the individual by the CPEO.
However, you may be recognised as an employer of some employees covered by a CPEO contract, and as a result, you may be liable for federal employment taxes imposed on salaries and other compensation paid by the CPEO to such employees.
Aggregate Form 940 filers
When filing an aggregate Form 940, section 3504 agents and CPEOs must complete Schedule R (Form 940). Agents of home care service recipients who have been approved by the IRS under section 3504 file aggregate Forms 940.
Unless you're a state or local government agency working as an agent under special rules, you must file Form 2678 with the IRS to obtain clearance to act as an agent for an employer.
Electronic funds transmission is required for federal tax deposits
All federal tax deposits must be made via EFT. The Electronic Federal Tax Payment System is typically used to make an EFT (EFTPS). If you don't wish to use EFTPS, you can have an electronic deposit made on your behalf by your tax professional, financial institution, payroll agency, or another trustworthy third party.
You can also have your financial institution make a same-day wire payment on your behalf. The Department of the Treasury offers EFTPS as a free service. A fee may be charged for services supplied by your tax professional, financial institution, payroll agency, or other third party.
Electronic payment and filing
Businesses might profit from online filing and paying their federal taxes. Whether you hire a tax expert or do your taxes yourself, the IRS has programmes to help you file and pay your taxes.
Why does the IRS require businesses to file Form 940?
Employers in the United States are obligated to contribute to Federal Unemployment Insurance. Employees who are laid off or fired for reasons unrelated to their performance can apply for unemployment compensation through this fund.
The IRS uses Form 940 to compute how much FUTA tax an employer owes, and most firms are required to file it every year. The form aids the IRS and individual employers in understanding and tracking FUTA tax due and paid throughout the year.
What exactly is the FUTA tax?
The Federal Unemployment Tax Act (FUTA) is classified as an employer tax, which means you must pay the entire tax amount. The FUTA tax is determined as a percentage of the salary you pay to each employee (specified by the federal government).
The regular FUTA tax rate has been 6% for the past few years. Employers are frequently eligible for a FUTA credit reduction, which can save them up to 5.4 percent off the usual 6 percent rate.
Only the first $7,000 paid to each employee is subject to FUTA tax. You won't have any further FUTA liabilities once their pay reaches that level.
Do you have to file Form 940?
You may be wondering if you need to file Form 940 now that you have a better grasp of what it is and why it is used. It's worth noting that not all employers in the United States are required to file Form 940, although the vast majority are.
The US Chamber of Commerce points out that non-profits, religious groups, and other 501(c)(3) accredited corporations are exempt from paying this tax, among the few exceptions to the law. Businesses that deal exclusively with independent contractors rather than W-2 workers qualify for the other exemption.
It's worth noting that reporting requirements fluctuate depending on the type of employment, such as household or agriculture. If you're unsure if you need to pay FUTA tax or file Form 940, speak with a tax specialist about your small business's needs.
How to Complete Form 940?
Let's assume you're not one of the few businesses exempt from completing Form 940, and we'll go over how to do it. To begin, you'll need to have the following information on hand:
- The current FUTA tax rate: For 2019 (and the previous few years), the FUTA tax rate is 6%, with a maximum credit decrease of 5.4 percent.
- The maximum FUTA threshold: You'll only pay the FUTA tax on the first $7,000 paid to each employee (minus reduction).
- The number of employees you had during the year
- Total compensation for each employee
How much state unemployment (SUTA) tax did you pay last year?
Credit for paid SUTA tax
In addition to the FUTA tax, most employers must also pay the state unemployment tax (SUTA). Know this before you become overwhelmed: Any SUTA tax you pay can usually be deducted from your FUTA tax bill. Employers can frequently receive the entire credit reduction of 5.4 percent off the 6% tax rate.
Note that credit amounts and eligibility differ by state and type of business. Always check with your state for the latest credit reduction information.
SUTA tax is claimed on Form 940, lines 1a and 1b, by providing the abbreviation of any and all states where you paid SUTA tax.
When should you file Form 940?
IRS Form 940 is an annual filing, which means you only have to fill it out and submit it once a year. The prior year's form is due on January 31st for the vast majority of small enterprises.
However, keep in mind that if you owe $500 or more in FUTA tax for the quarter, you must pay Form 940 quarterly. If your quarterly responsibility is less than $500, you can carry the balance over to the next quarter until your total debt exceeds $500.
After that, you'll have to pay the entire sum in that quarter. Quarterly payment deadlines are January 31st, April 30th, July 31st, and October 31st, respectively.
How to fill out Form 940 and pay your FUTA taxes?
Small businesses have a few alternatives when it comes to reporting Form 940 and paying FUTA tax payments.
You must either utilise tax software or engage with an approved e-file tax expert to file Form 940 (or any other IRS form) electronically. You can choose from a list of IRS-approved software and a database of authorised e-file providers provided by the IRS.
You'll use the Electronic Federal Tax Payment System to pay your full FUTA tax balance or make quarterly deposits online (or EFTPS).
If you're dealing with a tax software or professional, you can also use Electronic Funds Withdrawal to make your payments (or EFW). You can e-file and authorise payment in one step using this option.
Send your application and payment via mail.
Small businesses can also send in their Form 940 and FUTA tax payments by mail. If your FUTA balance is greater than $500 in the fourth quarter, you must pay electronically.
Print both Form 940 and Form 940-V, the payment voucher, and mail your form and payment. Send these, along with your money, to the state address listed. The right postal address can be found on pages 4 and 5 of the Form 940 Instructions.
Consult an accountant about filing for you.
Working with an accountant or other tax expert who can file both the form and the payment for you is your final choice for filing Form 940 and making accompanying payments or deposits. This is usually done through the Electronic Funds Withdrawal (EFW) method.
Getting to Know IRS Form 940
Every year, every company with employees must file Form 940 to calculate the amount of federal unemployment tax that must be paid. This payroll tax is calculated on each employee's first $7,000 in earnings (including owners of S corporations who receive a salary for work performed for their businesses).
The form is a single one-page return that lists total payments to all employees, less those payments that are exempt from FICA, such as some fringe benefits, group term life insurance, and dependent care assistance.
If a company has employees in more than one state, Schedule A of Form 940 may be required to calculate the tax if they work in jurisdictions where unemployment compensation rules provide a wage credit reduction.
When states borrow from the federal government to satisfy their unemployment compensation commitments and have not yet repaid these amounts, the 5.4 percent credit for state unemployment taxes is reduced.
When and where should the payment be sent?
Even though Form 940 is only filed once a year, an employer may be required to make tax deposits weekly. If the federal unemployment tax for the calendar year exceeds $500, at least one quarterly payment is required.
The deposit must be made no later than the last day of the month after the calendar quarter's conclusion. So, if an employer's federal unemployment tax is $600, the tax must be deposited by April 30 based on payroll for January through March.
If a quarter's quarterly liability is $500 or less, it is carried over to the next quarter. If the liability for the first quarter of the year is $400, it continues over to the second quarter and is added to the liabilities to assess if a payment is due.
Quarterly payments must be deposited with the federal government if they are necessary. EFTPS, a free and secure online federal tax payment platform, can be used to accomplish this.
State Unemployment Taxes and Form 940
On the first $7,000 of an employee's wages subject to FUTA tax, the typical FUTA tax rate is 6%. This 6% is then reduced by up to 5.4 percent as a credit for unemployment taxes paid to the state where you conduct business. After the credit is applied, the federal FUTA tax is 0.6 percent.
If you paid your state unemployment taxes on time and the state was not ruled to be a credit reduction state, you are generally entitled to the maximum state credit.
Some states borrow money from the federal FUTA tax credit. If a state fails to repay these loans on time, its FUTA tax credit would be decreased. For example, if a state has a credit reduction of 0.3 percent, businesses in that state will only receive a FUTA credit of 5.1 percent and will have to pay the additional 0.3 percent to reach the FUTA tax rate of 6 percent.
FUTA taxes are computed on employee wages, according to the IRS, but this is unclear. Most payments to employees are subject to FUTA tax calculations, but there are a few exceptions. The FUTA tax does not apply to mileage reimbursements, insurance premiums, or other fringe benefits.
Check that you are including and excluding the correct payments before doing this computation. IRS publications 15 and 15-A contain this information.
Wages subject to state unemployment taxes differ from those subject to FUTA taxes in various states. Some states exempt certain earnings from the FUTA tax (for example, wages paid to corporate officers, certain payments of sick pay by unions, and certain fringe benefits). You may have to deposit more than the 0.6 percent FUTA tax in certain instances.
New Hire Preparation - State Registrations
Before you start recruiting new staff, you'll need to register with many departments in your state:
You must register for income taxes with your state in order to collect state income taxes from employee pay and report and pay those taxes to the state.
You must also register as an employer with your state's employment bureau in order to pay unemployment and workers' compensation taxes.
Finally, all new employees must be reported to your state's new hire reporting website. This information is used by states to track employees in order to garnish pay for child support.
What is Form 940's Purpose?
These guidelines provide some background information about Form 940. They explain who is responsible for filing the form, how to complete it line by line, and when and where to file it.
To report your yearly Federal Unemployment Tax Act (FUTA) tax, use Form 940. The FUTA tax, in conjunction with state unemployment tax systems, provides funding for paying unemployment benefits to workers who have lost their jobs.
Most employers are responsible for both federal and state unemployment taxes. FUTA tax is only paid by employers. FUTA tax should not be collected or deducted from your employees' wages.
After removing any payments exempt from FUTA tax, the FUTA tax is applied to the first $7,000 you pay to each employee in a calendar year.
Additional credit
If your state experience rate is less than 5.4 percent, you may be eligible for an additional credit (0.054). This is true even if your rate fluctuates during the year. The difference between your actual state unemployment tax payments and the amount you would have been obliged to pay at 5.4 percent is the amount you will get as an additional credit.
If the CPEO is permitted by state law to collect and remit payments to the state unemployment fund on behalf of a work site employee, the CPEO is entitled to an additional credit for wages given to that employee.
Successor employers deserve special recognition. A credit based on state unemployment taxes paid by a predecessor may be available. If you're a successor employer who bought a business in 2021 from a predecessor who wasn't an employer for FUTA purposes and wasn't obliged to file Form 940 for 2021, you can claim this credit.
When Do You Have to Pay Your FUTA Tax?
Despite the fact that Form 940 is for a calendar year, you may need to deposit your FUTA tax before filing your return. If your FUTA tax for the calendar year exceeds $500, you must make at least one quarterly payment.
Based on the amount of your quarterly tax liability, you must decide when to deposit your tax. Carry your FUTA tax over to the next quarter if it is $500 or less in a given quarter. Carry your tax liability over until your total tax liability exceeds $500.
You must then deposit your taxes for the quarter. Pay your FUTA tax by the last day of the month after the quarter's conclusion. If your tax for the next quarter is less than $500, you don't have to deposit it again until the total amount is greater than $500.
How do you calculate your quarterly FUTA tax liability?
After deducting any payments exempt from FUTA tax, you owe FUTA tax on the first $7,000 you pay to each employee throughout the calendar year. For 2021, the FUTA tax will be 6.0 percent (0.060). Most companies are eligible for a FUTA tax credit of up to 5.4 percent (0.054). Every quarter, you must calculate how much of each employee's first $7,000 in annual earnings you paid during that quarter.
Calculate Your Tax Obligation
Calculate your FUTA tax liability for the quarter before calculating the amount to deposit. To calculate your tax liability, multiply the first $7,000 of each employee's yearly salary received for FUTA wages paid during the quarter by 0.006.
The tax rates are calculated assuming you receive the maximum FUTA tax credit. If you paid all state unemployment tax before the due date on your Form 940, or if you weren't required to pay state unemployment tax during the calendar year due to your state experience rate, you're eligible for the full credit.
How Should You Pay Your FUTA Tax?
EFT is required for FUTA tax deposits.
All federal tax deposits must be made via EFT. EFTPS is typically used to make an EFT. If you don't wish to use EFTPS, you can have an electronic deposit made on your behalf by your tax professional, financial institution, payroll agency, or another trustworthy third party.
You can also have your financial institution make a same-day wire payment on your behalf. The Department of the Treasury offers EFTPS as a free service. A fee may be charged for services supplied by your tax professional, financial institution, payroll agency, or other third party.
To manage your costs and expenses you can use many available online accounting software.
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Key Takeaways
- The federal unemployment tax annual report is IRS Form 940. Employers are responsible for reporting and paying unemployment taxes to the IRS on behalf of their employees. They don't deduct these taxes from employee pay, but they must set aside the necessary funds and report them on Form 940.
- The Federal Unemployment Tax Act (FUTA) works in tandem with state unemployment systems to offer compensation to persons who have lost their jobs due to no fault of their own. The law permits the government to tax employers based on employee wages in order to fund these benefits, and it also compels companies to pay FUTA taxes and report them on Form 940.
- Even though Form 940 is for a calendar year, you may need to deposit your FUTA tax before filing. You must make at least one quarterly payment if your FUTA tax liability for the calendar year exceeds $500. If your FUTA tax liability is $500 or less in a particular quarter, you can carry it forward to the next quarter.
- Accredited professional employer organisations (CPEOs) must meet certain requirements outlined in sections 3511 and 7705, as well as relevant published guidance, to become and remain certified under the certification programme. The CPEO's and its customers' employment tax liability may be affected by certification as a CPEO.
- In addition to the FUTA tax, most employers must also pay the state unemployment tax (SUTA). Know this before you become overwhelmed: Any SUTA tax you pay can usually be deducted from your FUTA tax bill. Employers can frequently receive the entire credit reduction of 5.4 percent off the 6% tax rate.
- Working with an accountant or other tax expert who can file both the form and the payment for you is your final choice for filing Form 940 and making accompanying payments or deposits. This is usually done through the Electronic Funds Withdrawal (EFW) method.
- All federal tax deposits must be made via EFT. EFTPS is typically used to make an EFT. If you don't wish to use EFTPS, you can have an electronic deposit made on your behalf by your tax professional, financial institution, payroll agency, or another trustworthy third party.