What is Form 940 | Meaning & Definition

The IRS return filing has been increasing over the years. According to eFile, 92% of people in America filed for an IRS in 2021.

It shows that Americans file their annual tax returns with the federal government on time. It doesn't matter what size your business is; if you run a business with employees, you must submit IRS Form 940.

This article is a detailed manual for completing Form 940. It'll cover every aspect related to Form 940. Let's start.

What is Form 940?

Employers submit Form 940 to the IRS at the end of each year to report their federal unemployment taxes (FUTA). The IRS requires employers to file reports and pay employee unemployment taxes.

These employment taxes are not withheld from the employee's salary. However, businesses must set aside the necessary sum and file Form 940 with the IRS.

Using IRS Form 940, the amount of unpaid unemployment tax is determined and compared to the employer's liability and the amount of tax already paid.

What Do You Mean by the FUTA Tax?

There may be a question on your mind regarding the FUTA tax. Let us tell you that there are two primary tax types applicable to payroll and employment taxes:

Employer taxes are entirely your responsibility as the employer to pay.
Withholding taxes are taxes your employees must pay on their income; however, it is your responsibility to deduct them from their paychecks and report them to the taxing body.

The FUTA tax comes under employer taxes and is determined using a percentage of the salaries you pay each employee.

Who Needs to File Form 940?

You might be wondering whether your business must file Form 940 or not. Form 940 is not necessary for all American employers, but most of them need to file it.

Your company is required to pay this tax if the two conditions below are satisfied:

The company has employed a W-2 worker for 20 or more weeks out of the year.
The company has paid its employees more than $1,500 in any specific calendar quarter.

Note: The 20 weeks do not need to be consecutive, and employees must have worked full-time, part-time, or temporarily.

When Do You Need to Fill Out the FUTA Tax Form 940?

You must file the FUTA tax Form 940 annually. Thus, HR personnel must be aware of the deadlines and submit the forms by January 31 for the previous year. But if you paid all of your FUTA tax when it was due, you can submit Form 940 by February 10.

Below are a few things you must know:

You must provide at least one quarterly payment if your FUTA tax obligation for the entire calendar year exceeds $500.
If you have a balance for any quarter less than $500, you can carry it over to the following quarter until it is at least $500.
If your entire FUTA tax liability for the year is less than $500, you have to pay it once a year before January 31.
The form must be submitted the next working day if the deadline falls on a legal holiday or the weekend.

Are there any Penalties if I Don't File Form 940 on Time?

The IRS may impose a fine if you don't file Form 940 and make the payment by the due date.

The fine may start at 2% and go up to a maximum of 15% depending on how much late you pay. The penalty could rise and accumulate if you do the filing even later.

So, to ensure you don't have to pay heavy fines, pay Form 940 on time. However, you might use Form 843 to ask for a reduction in the penalties or interest imposed.

Where Can You File Form 940?

You can file Form 940 electronically or by mail with any related tax payments. After completing your 940 Form, you must send it to the location specified in Form 940's instructions. The employer's location determines the address and whether a payment is submitted with the form.

If you wish to file it electronically, you may visit the official website of the IRS. Additionally, you must employ a third party and pay a charge if you elect to e-file it.

The forms have various parts. You must read the instructions carefully and ensure you have all the data while filling out the form. Some essential required information is the current FUTA tax rate, maximum FUTA threshold, number of employees, and total salary paid.

How Can You Prevent Fines and Interest?

You can avoid fines and interest by following proper procedures and making IRS payments on time. Pay attention to the following to prevent paying severe IRS fines:

When taxes are due, deposit them and pay them.
Complete and submit your Form 940 as soon as possible.
If necessary, include Schedule R (Form 940).
Include the required schedules (A, R).

Are there any FUTA Tax Exemptions?

Not every employer is required to submit Form 940 and submit FUTA taxes. Form 940 and the FUTA tax are not required to be submitted by tax-exempt organizations, governmental bodies, or Indian tribal governments that took part in their state's unemployment systems.

Where Do I Need to Mail Form 940?

The IRS states that the address to mail your Form 940 will depend on your location and whether you are mailing it with or without payment.

Find here the state-wise mailing addresses for Form 940 and choose an address as per your location and mailing type.