What IRS Form 940 (2021) Is For

Form 940 is used to report your annual Federal Unemployment Tax Act (FUTA) tax, which together with state unemployment tax systems provides funds for paying unemployment compensation to workers who have lost their jobs (IRS Instructions for Form 940 (2021)). Employers must file Form 940 if they paid wages of $1,500 or more to employees in any calendar quarter during 2020 or 2021, or had one or more employees for at least some part of a day in any 20 or more different weeks in 2020 or 2021. Only employers pay FUTA tax—it cannot be collected or deducted from employees' wages.

When You'd Use Form 940 for 2021 (Late or Amended Filing)

You would file a late Form 940 for 2021 if you missed the original due date of January 31, 2022 (or February 10, 2022 if you deposited all FUTA tax timely). Common scenarios include receiving IRS notices about unfiled returns, discovering you owed tax but failed to file, or needing to correct a previously filed return. For amended returns, check box "a" on the form and use the same 2021 version to make corrections (IRS Instructions for Form 940 (2021)). Unlike income tax refunds, there's no specific refund statute limitation mentioned for FUTA overpayments, but you should file corrections promptly to avoid additional penalties and interest accumulation.

Key Rules Specific to 2021

For 2021, the U.S. Virgin Islands was the only credit reduction state, with a 3.3% credit reduction rate that increased the effective FUTA tax rate for wages subject to Virgin Islands unemployment tax (IRS Instructions for Form 940 (2021)). The standard FUTA tax rate remained 6.0% on the first $7,000 of each employee's wages, with most employers receiving a maximum credit of 5.4% for timely state unemployment tax payments. Moving expense and bicycle commuting reimbursements continued to be subject to FUTA tax due to Tax Cuts and Jobs Act provisions that suspended certain exclusions through 2025.

Step-by-Step (High Level)

• Gather wage and tax records: Collect payroll records, state unemployment tax payments, and prior year tax transcripts from the IRS if needed
  
  
• Complete the 2021 Form 940: Use the specific 2021 version, not current year forms, entering all required wage and tax information
  
  
• Attach required schedules: Include Schedule A (Form 940) if you're a multi-state employer or subject to credit reduction
  
  
• Calculate penalties and interest: Late filing penalties are 5% per month (maximum 25%) of unpaid tax under Internal Revenue Code provisions
  
  
• File and pay: Mail to the "without payment" address even if including payment (IRS Instructions for Form 940 (2021)), or e-file if available; use Form 9465 for installment agreements if you cannot pay in full
  
  
• Keep complete records: Maintain copies of all forms, schedules, and payment documentation for your records
  
  

Common Mistakes and How to Avoid Them

• Using wrong tax year form: Always use the 2021 Form 940 for 2021 returns, not current year versions
  
  
• Incorrect credit calculations: Ensure state unemployment taxes were paid by the Form 940 due date to claim full credit; late state payments reduce your federal credit (IRS Instructions for Form 940 (2021))
  
  
• Missing multi-state requirements: If you paid wages in multiple states, you must complete and attach Schedule A (Form 940)
  
  
• Excluding covered wages: Include all wages subject to FUTA tax, even if excluded from state unemployment tax in certain states
  
  
• Wrong mailing address: Use the "without payment" mailing address for amended returns, even if including a payment (IRS Instructions for Form 940 (2021))
  
  
• Incomplete documentation: For amended returns, always attach a clear explanation of changes and supporting documentation
  
  

What Happens After You File

The IRS typically processes Form 940 within several weeks to a few months, though late returns may take longer due to additional penalty and interest calculations. You may receive notices requesting additional information or confirming any balance due. If you cannot pay the full amount owed, you can request an installment agreement using Form 9465 or apply online at IRS.gov for amounts under $50,000 (About Form 9465, IRS.gov). Penalties and interest continue to accrue until the balance is paid in full. You can request penalty abatement using Form 843 if you have reasonable cause for late filing, such as circumstances beyond your control (About Form 843, IRS.gov). If you disagree with IRS determinations, you have appeal rights as outlined in any notices you receive.

FAQs

Can I still file Form 940 for 2021 even though it's late?

Yes, you should file as soon as possible. Late filing penalties accrue under Internal Revenue Code provisions, but filing late is better than not filing at all.

How do I get transcripts for 2021 to help complete my return?

Request wage and income transcripts from the IRS by calling the numbers provided in IRS publications or visiting IRS.gov/Transcripts. These show what wage information the IRS has on file.

What if I discover I overpaid FUTA tax for 2021?

File an amended Form 940 checking the "amended" box (IRS Instructions for Form 940 (2021)). The IRS will process your refund according to standard processing procedures.

Do I need to amend my state unemployment returns too?

Check with your state unemployment agency. State and federal returns are separate systems, so corrections to one don't automatically update the other.

Can I set up a payment plan for FUTA taxes owed?

Yes, use Form 9465 to request an installment agreement, or apply online at IRS.gov if you owe less than $50,000 (Payment plans; installment agreements, IRS.gov). Setup fees may apply based on IRS fee schedules.

What if I never received an EIN or lost my employer identification number?

Contact the IRS Business and Specialty Tax Line as provided in IRS publications to retrieve your EIN. You cannot file Form 940 without a valid EIN.

Is there a deadline for claiming FUTA refunds from 2021?

While no specific statute is mentioned in FUTA guidance, file amended returns promptly to avoid potential limitations and ensure timely processing of any refund due under standard IRS procedures.

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