Payroll
Form 940 (FUTA Return)
The annual federal return employers file to report and pay federal unemployment (FUTA) tax.
Form 940 is filed once a year, due January 31 for the prior calendar year. It reconciles the FUTA tax owed — 6.0% on the first $7,000 of each employee's wages, reduced to an effective 0.6% for employers who paid their state unemployment tax on time.
Although the return is annual, the tax may not be: once accumulated FUTA liability exceeds $500 in a quarter, a quarterly deposit is required. Small employers under that threshold can pay the full amount with the return.
Watch for 'credit reduction' states: when a state has borrowed from the federal unemployment fund and not repaid it, employers in that state lose part of the 5.4% credit and owe extra FUTA with Form 940.
Common pitfalls
- Confusing Form 940 (annual, unemployment) with Form 941 (quarterly, income tax withholding and FICA) — they are separate filings with separate deadlines
- Missing the $500 quarterly deposit trigger and paying everything in January — late-deposit penalties apply
- Not checking the credit-reduction state list each year — the extra tax surprises employers in affected states
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