Form 940— Employer’s Annual Federal Unemployment Tax Return is the IRS tax form used for reporting FUTA tax. Businesses must file Form 940 in 2021 if the wages paid to employees is more than $1,500 in a quarter.
Form 940 has a direct relation with the unemployment. The unemployment tax payments are mandatory and are based on the wages and salaries of the employees. The unemployment tax rate is 6% with a maximum of $7,000 in wages for every year per employee.
However, if the wages are subject to state unemployment, you can get a credit of up to 5.4%. This ultimately lowers the FUTA tax rate to 0.6%. Regardless of the FUTA tax rate that applies to you, Form 940 must be filed.
Filing Instructions for Form 940 for 2021
While the information that needs to be provided on Form 940 is very basic, some of the calculations may be quite confusing. You will need to provide information on the employee’s unemployment on Form 940. Before you do that though, you must enter your business information and state unemployment tax status.
You will then need to determine your FUTA tax accounting the adjustments to gross pay to employees who are exempt from the FUTA tax. Once this is done, move on to adjusting the payments that are exempt from FUTA. Lastly, subtract the payments in excess of $7,000 which is the maximum limit.
After these are done, you can calculate the adjustments for the state unemployment tax payments. Similar to how you’ve made estimated tax payments, compare the amount owed and see if any FUTA tax is due. If the amount you’ve already paid is more than the FUTA tax owed, you will get the excess amount in your tax refund.
Printable Form 940 and e-Filing
Form 940 can be filed by mail or through e-File. While you can get the printable Form 940 as PDF below, you must use the IRS-approved tax software or use the IRS e-file to file electronically.
You may also be eligible to file Form 940 with Free File. If your income is below $69,000, you qualify for filing with Free File. If your income is above $69,000, you can still be eligible. To check your eligibility if you earn more than $69,000, click here.