What Form 940 Is For
IRS Form 940 (2025) reports your annual FUTA tax liability and helps the federal government determine contributions to the federal unemployment trust fund. These taxes, combined with state unemployment taxes, support state unemployment programs that provide benefits to eligible workers.
Employers pay FUTA tax based on the wages they pay to employees, not the wages withheld from workers’ pay. The standard FUTA tax rate remains 6.0% on the first $7,000 of each employee’s wages, but most employers receive a credit for timely state unemployment tax payments. This credit can reduce the effective rate to as low as 0.6%.
For a detailed breakdown of filing requirements, eligibility rules, and step-by-step instructions for IRS Form 940 (2025): Employer’s Annual FUTA Return, see our comprehensive guide.
When You’d Use Form 940
Employers file Form 940 each year to report their FUTA tax to the IRS. You may also need to file an amended or late return in the following situations:
- You received an IRS notice indicating that a prior Form 940 was unfiled, incomplete, or contained errors that must be corrected.
- You discovered mistakes in previously reported wage or tax information that affect your FUTA tax liability for the year.
- You need to claim a FUTA tax credit for state unemployment taxes that were paid after your original federal filing date.
The regular due date for filing the 2025 Form 940 is February 2, 2026, or February 10, 2026, if all FUTA taxes were deposited on time. For late filings, employers may claim refunds within three years of the due date or two years from the date of payment, whichever is later.
Key Rules or Details for 2025
For the 2025 tax year, some states may be designated as credit reduction states under Title XII of the Social Security Act. Employers in these states must pay an additional FUTA tax because their state unemployment funds borrowed money from the federal government and have not yet repaid it.
Employers affected by this must complete Schedule A (Form 940) to calculate the additional amount owed.
2025 FUTA Tax Details
- The FUTA wage base is $7,000 per employee per year.
- The standard FUTA tax rate is 6.0%.
- The maximum credit for state unemployment taxes is 5.4%.
- The effective FUTA tax rate for most employers is 0.6%.
- Credit reduction applies to employers in certain states with outstanding federal loans.
These payments help replenish the federal unemployment trust fund and maintain the balance between federal and state unemployment programs.
For complete details on wage reporting, withholdings, and unemployment tax filings, see our guide to Payroll & Employment Tax Forms.
Step-by-Step (High Level)
Gather your records.
Collect payroll summaries, prior-year Form 940 filings, and state unemployment tax reports. Verify the total wages paid to all employees during the 2025 calendar year before completing your return.
Complete the correct form version.
Use the official 2025 Form 940 to report all FUTA wages, credits, and adjustments. Avoid using forms from prior tax years, as the rates and credit reduction states may differ.
Attach required schedules.
Attach Schedule A if you had employees in credit reduction states during 2025. Include Schedule R if you are filing an aggregate return as a reporting agent or professional employer organization (PEO).
Choose your filing method.
File Form 940 electronically through an authorized IRS e-file provider or mail a paper return to the IRS address designated for your business type. Confirm the correct mailing address based on whether payment is enclosed.
Keep copies for your records.
Maintain copies of all submitted forms, payment confirmations, and IRS correspondence for at least four years. These records help verify compliance if the IRS requests documentation or conducts an audit.
Common Mistakes and How to Avoid Them
- Using the wrong year’s form: Always use the correct tax year form. The 2025 version must be used for 2025 wages, even if it is filed after the deadline.
- Miscalculating taxable wages: FUTA tax applies only to the first $7,000 paid to each employee during the year. Wages above that limit are not subject to FUTA tax.
- Forgetting credit reduction calculations: Employers in credit reduction states must complete Schedule A to determine and report additional FUTA liability.
- Incorrect EIN usage: Ensure your Employer Identification Number matches IRS records precisely to prevent delays in processing or rejection of your return.
- Missing deposit requirements: If your FUTA tax liability exceeds $500 in any quarter, make deposits by the last day of the following month to avoid penalties.
- Not checking the amended return box: When correcting a previously filed Form 940, check box “a” for amended return and include an explanation of all changes made.
For information about other common business tax problems, see this additional resource.
What Happens After You File
The IRS typically processes Form 940 within several weeks and may send a notice confirming receipt or requesting more information. If you owe additional tax, you can apply for a payment plan using Form 9465. Refunds are issued through direct deposit when banking information is provided. If you disagree with any IRS adjustment, you may file an appeal within 30 days of receiving the notice.
FAQs
What is IRS Form 940 (2025) used for under the Federal Unemployment Tax Act?
IRS Form 940 (2025) allows employers to report their annual FUTA tax, which funds unemployment insurance programs under the Federal Unemployment Tax Act. This form ensures that proper contributions are made to both federal and state unemployment trust funds on an annual basis.
How does the FUTA tax rate affect most employers?
The FUTA tax rate for the 2025 taxable year is 6.0% on the first $7,000 of each employee’s wages paid. Most employers receive a FUTA tax credit of up to 5.4% for timely payment of state unemployment taxes.
What are credit reduction states, and how do they change your FUTA tax liability?
Credit reduction states owe outstanding loans to the federal government under Title XII. Employers in these states must pay additional FUTA taxes using the reduction schedule on Schedule A, which increases their FUTA tax liability for the given year.
Do state unemployment taxes affect FUTA credit calculations?
Yes, state unemployment taxes paid on time reduce your FUTA tax through the FUTA tax credit. The IRS requires employers to report these payments accurately to determine the correct federal unemployment tax owed for the calendar year.
Who must file Form 940, and when is it due?
Most employers must file Form 940 annually if they paid wages of $1,500 or more or had at least one employee for some part of 20 different weeks. The federal unemployment tax return is due each January following the end of the taxable year.
For more resources on filing or understanding prior-year IRS forms, visit our Form Summaries and Guides Library.
