Form 940 Instructions

What's New in the IRS Form 940?

IRS Form 940 updates include changes for credit reduction states. Employers in California and New York face a 0.6% credit reduction rate, while the U.S. Virgin Islands has a 3.9% rate, increasing their FUTA taxes due to unpaid federal loans for unemployment benefits.

Part 1: Information about the Form 940 return

In Part 1 of the 940 Form, you must provide some basic information about your return. Leave any lines that do not apply to your business blank.

• Line 1a: Indicate if you are an employer who has paid unemployment taxes in only one state. Enter the abbreviation for that state.
• Line 1b: Indicate whether you have paid unemployment taxes in more than one state. This means your company is a multi-state employer, and you must complete and attach Form 940 Schedule A.
• Line 2: Indicate whether you paid wages in a credit-reduction state. For the 2023 tax year, the credit-reduction states are California, New York, and the U.S. Virgin Islands.

Part 2: Determine your FUTA tax before adjustments

In Part 2 of Form 940, you will calculate your FUTA tax before any adjustments. Again, skip any lines that do not pertain to your business.

• Line 3: Enter the total payments made to all employees, even if some are not subject to FUTA taxes.
• Line 4: List any payments that are exempt from FUTA tax. For example, payments that do not meet the definition of wages. Check each of the following that apply:
  1. Fringe benefits
  2. Group-term life insurance
  3. Retirement/Pension
  4. Dependent care
  5. Other
• Line 5: Enter any payments made to an employee that exceed $7,000. The FUTA wage base is $7,000, meaning that any amount above this threshold is not subject to FUTA taxes. Subtract any payments exempt from FUTA taxes from this total.
• Line 6: Enter the subtotal. Add the amounts from Lines 4 and 5, then record the total on Line 6.
• Line 7: Total taxable FUTA wages. To calculate this amount, subtract the amount on Line 6 from the amount on Line 3.
• Line 8: FUTA tax before modifications. Multiply the amount on Line 7 by 0.006 to calculate this amount.

Part 3: Determine your adjustments

In Part 3, you will make your adjustments. Only fill out the lines that apply to your business.

• Line 9: If all taxable FUTA wages were exempt from state unemployment taxes, multiply the amount on Line 7 by 0.054 and enter the result here. Then proceed to Part 4.
• Line 10: If some of the taxable FUTA wages were exempt from state unemployment taxes, complete this line accordingly. Also, be sure to fill out Line 9 if you paid any state unemployment taxes late.
• Line 11: If a credit reduction applies, complete this line by entering the total from Schedule A.

Part 4: Determine your FUTA tax and balance due or overpayment

In Part 4, you will be determining your FUTA tax balance due and if you overpaid.

• Line 12: This is the total of Lines 8, 9, 10, and 11. If the amount on Line 9 is more than zero, then Lines 10 and 11 must be zero.
• Line 13: Enter your FUTA deposits for the year here, including any overpayments made in the previous year.
• Line 14: Calculate the balance due. If the amount on Line 13 is less than the amount on Line 12, enter the difference here.

If Line 13 is more than Line 12, enter the difference on Line 15, which represents the overpayment. Check the box to apply the overpayment to a future return or to get a refund.

Part 5: Report your FUTA tax liability by quarter only if line 12 is more than $500

You only need to complete Part 5 of Form 940 if the amount you entered on Line 12 is $500 or more; otherwise, skip to Part 6.

• Line 16: Enter your FUTA liabilities for each quarter.
  1. (Q1)
  2. (Q2)
  3. (Q3)
  4. (Q4)
• Line 17: Calculate the total FUTA liability for the year by adding the amounts from each quarter.

Use these Form 940 instructions to easily file Form 940.

Part 6: Third-party designee information

What is the mailing address for paper filing of Form 940?

If you file a paper return, the filing address depends on whether you include a payment with Form 940. Mail your return to the address listed for your location in the table below. Please note that the IRS encourages filing Form 940 electronically.