Payroll can be complex. There are tons of forms to complete and federal taxes to be paid, such as FUTA. To pay your FUTA tax, you must first complete Form 940. To learn more about this form, keep reading.
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.
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.
You are required to file Form 940 and pay federal unemployment tax if you are a US employer and meet any of these requirements.
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.
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.
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.
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.
Looking for a simpler option? Eddy’s payroll software automates end-of-year Form 940 filing. Learn more