What Is Form 940?

Form 940 is an Internal Revenue Service (IRS) form used by employers to report taxes under the Federal Unemployment Tax Act (FUTA), a tax that provides funding for unemployment compensation for those who have lost employment.

Form 940 vs Form 941

Unlike Form 940, which is used to report the unemployment rate, Form 941 is used to report income, Social Security, and Medicare taxes withheld on behalf of your employees and to pay the employer’s portion of both Social Security and Medicare taxes.

Who Is Required to File Form 940?

You are required to file Form 940 and pay federal unemployment tax if you are a US employer and meet any of these requirements.

  • Wages.  Your organization has paid $1,500 or more in wages to any W-2 employee. Contractors are not included.
  • Weeks worked.  Your organization has had one or more W-2 employees (full-time or part-time) for at least 20 weeks out of the previous year.
  • Agriculture. Your organization paid cash wages of $20,000 or more to farmworkers during any  quarter, or you employed 10 or more farm workers during some part of the day (does not have to be at the same time) during any 20 or more different weeks.

There are a few exemptions, such as non-profits, religious organizations, and other 501(c)(3) accredited organizations. In addition, organizations that work solely with independent contractors are also excluded.

Why Does the IRS Require Companies to File Form 940?

All U.S. employers are required to pay federal unemployment benefits on behalf of their employees. Form 940 facilitates the collection of these funds, which provide former employees unemployment compensation should they be terminated (e.g., layoffs) unrelated to performance.

Penalties for Not Filing Form 940

There are penalties associated with the failure to file Form 940 on time.

For each month Form 940 is filed late, the IRS imposes a late file fee of 5% of the unpaid tax amount.

How to File Form 940

Form 940 can be filed either by mail or electronically. When filing electronically, you have two options: submit the form yourself or have a professional tax preparer complete it on your behalf.

Self-file. To file yourself, you must purchase an IRS-approved software and pay a fee to enroll to e-file. Online signatures are also available; however, you must apply, and this procedure takes approximately 45 days to complete once your application has been submitted.

Tax preparer. If your organization opts to have a tax preparer file on your behalf, ensure that it is an Authorized IRS e-file provider. You may locate an approved vendor through the IRS’ Tax Professional Partner page. 

In addition, the IRS provides guidelines on how to file correctly.

  • Make sure your business name and EIN are on every page of the form and any attachments.
  • Don’t enter dollar signs and decimal points. Commas are optional. Enter dollars to the left of the preprinted decimal point and cents to the right of it.
  • You may choose to round your amounts to the nearest dollar, instead of reporting cents on this form. If you choose to round, you must round all entries.
  • If you have a line with a value of zero, leave it blank.
  • When completing your form electronically, use a 12-point Courier font when possible.
  • Find the full IRS Guidelines here: Instructions for Completing Form 940

Looking for a simpler option? Eddy’s payroll software automates end-of-year Form 940 filing. Learn more