Form 940 Guide – Employer’s Annual FUTA Tax Return (2025)

Filing the 2025 Form 940 is an essential responsibility for employers covered under the federal unemployment tax act. This annual federal unemployment tax return helps the federal government fund unemployment benefits for workers who lose their jobs. Employers pay these federal unemployment taxes, not employees, so businesses must understand their role in reporting and paying the correct amount. Completing the form accurately ensures compliance with the Internal Revenue Service (IRS) and avoids consequences such as interest charges or collection actions tied to unpaid taxes.

The FUTA tax rate applies to employee wages each tax year, but only up to a specific threshold. The annual federal unemployment wage base is $7,000 per employee, meaning only wages paid up to that amount are subject to FUTA tax. While this might seem straightforward, many employers face questions about determining tax liability, calculating FUTA taxable wages, and making quarterly payment deposits when their total amount owed exceeds limits. Knowing how the rules apply at the federal level helps businesses stay compliant and prevent avoidable mistakes.

The IRS Form 940 information page explains that employers must use the most recent version of the form to remain in good standing with the agency. Using updated forms, keeping accurate payroll tax records, and filing on time protects businesses from added interest or enforcement actions. IRS Form 940 information

Federal Unemployment Tax Act Explained

The federal unemployment tax act requires employers to fund unemployment benefits at the federal level. Employers pay this tax directly to the Internal Revenue Service (IRS); employees do not share the burden. These federal unemployment taxes apply to wages paid during a tax year, up to a set threshold, ensuring the federal government can fund unemployment benefits nationwide.

The law defines the scope of employer responsibility, including when liability begins and how tax liability must be calculated. The FUTA tax rate applies to only a portion of an employee’s wages, and compliance is based on accurate reporting. This structure creates consistent funding for unemployment benefits across the federal level.

Key Elements of FUTA Compliance

• FUTA taxable wages: The first $7,000 of each employee’s wages are subject to federal unemployment taxes.
  
  
• FUTA tax rate: The standard rate is 6.0 percent, lowered to 0.6 percent if state unemployment contributions are fully paid.
  
  
• Employer thresholds: An employer must file if wages exceed $1,500 in a calendar quarter or if one or more employees worked for at least part of 20 weeks.
  
  
• Annual federal unemployment filing: Employers complete a yearly tax return, supported by payroll tax records.
  
  
• Quarterly payment rules: Deposits are required when FUTA tax liability for a quarter exceeds $500.

Understanding these definitions helps employers accurately determine their total amount owed. Special categories such as agricultural employers, household employees, and multi-state businesses face additional considerations, reinforcing the importance of careful recordkeeping and timely action.

Employer Filing Requirements and Due Date

Employers must understand the filing rules for Form 940 to remain compliant with the Federal Unemployment Tax Act. Filing obligations depend on wages paid and the number of employees on record during the tax year. The Internal Revenue Service (IRS) evaluates these factors to determine which employers must submit the annual federal unemployment tax return and the due date for compliance.

General Filing Rules

FUTA tax applies when an employer pays $1,500 or more in wages during any calendar quarter or has one or more employees working in 20 different weeks of the year. Agricultural employers must file if they pay at least $20,000 in a quarter or employ 10 or more agricultural employees in 20 weeks. Household employers must file when they pay $1,000 or more in cash wages during a quarter. These thresholds define when FUTA taxable wages create liability at the federal level.

Filing Deadlines

The standard due date for the annual federal unemployment tax return is January 31, 2026. Employers who fully pay FUTA tax through timely quarterly payment deposits may file as late as February 10, 2026. Each tax return must report all wages paid during the 2025 calendar year, including salaries paid by a successor employer when business ownership changes. Missing these deadlines can result in interest charges and potential collection actions, which highlights the importance of timely filing.

Compliance Considerations

Employers must file Form 940 for the 2025 tax year, ensuring it is signed, dated, and supported by submission records. If wages are no longer paid, the return should be marked as final to notify the federal government. Transparent reporting of FUTA taxable wages, payroll tax liability, and any unpaid tax keeps businesses compliant with quarterly payment obligations and the annual federal unemployment filing. Guidance on these requirements is available in IRS Topic 759.

Meeting these requirements and observing due dates allows businesses to avoid unnecessary complications while maintaining accurate tax records with the IRS. Employers that establish reliable payroll processes reduce risks tied to unpaid tax and support ongoing compliance with federal unemployment taxes.

Agricultural Employees and Household Employers

Employers with agricultural or household employees face unique obligations under the federal unemployment tax act. The Internal Revenue Service (IRS) sets specific thresholds for wages paid and employee counts that determine when federal unemployment taxes apply. Meeting these conditions requires filing the annual federal unemployment tax return and calculating FUTA taxable wages accurately.

Filing Requirements for Specialized Employers

• Agricultural employers: Businesses must file when they pay $20,000 or more in wages during a calendar quarter. Filing is also required when 10 or more agricultural employees work for at least some part of a day in 20 different weeks of the year. These conditions ensure that the federal unemployment system covers workers in seasonal or farming industries.
  
  
• Household employees: Families or individuals must file when they pay household employees $1,000 or more in cash wages in any quarter. This includes caregivers, housekeepers, or similar workers. Once the threshold is met, the employer becomes responsible for FUTA tax and must include the wages in the annual federal unemployment filing.
  
  
• Successor employer situations: When one employer takes over a business and continues employing the same workers, liability transfers. The new employer assumes responsibility for FUTA tax on wages already paid, preventing gaps in federal tax reporting.
  
  
• Stopped paying wages: If agricultural or household employers stop paying wages during the tax year, they must file a final return. This notifies the federal government that FUTA tax liability no longer applies.

Compliance Considerations

Employers with agricultural and household employees must track wages closely to determine when FUTA tax applies. Careful recordkeeping ensures accurate calculation of payroll tax liability and supports timely submission of the annual federal unemployment filing form. Missing these requirements can create unpaid tax balances, interest charges, and IRS enforcement measures. By maintaining compliance, specialized employers protect workers while meeting responsibilities under federal tax law.

Filing Form 940 Step-by-Step

Completing Form 940 requires careful attention to payroll records and accurate reporting. Employers must track wages paid, calculate FUTA taxable wages, and apply the correct FUTA tax rate. Each part of the filing form ensures that the Internal Revenue Service (IRS) can confirm compliance with the Federal Unemployment Tax Act. Employers can follow the instructions on Form 940 to support each process stage.

Step 1: Identify the Return Type

At the start of the form, employers indicate whether the return is original, amended, or final. An amended return corrects errors from a previously filed tax year. A final return applies when the employer has stopped paying wages and no longer has FUTA tax liability.

Step 2: Determine FUTA Taxable Wages

Employers calculate total wages paid to employees during the year, then subtract exempt amounts such as certain fringe benefits or payments not subject to FUTA tax. The remaining balance represents FUTA taxable wages, which are capped at $7,000 per employee. This amount forms the basis for applying the FUTA tax rate.

Step 3: Apply the FUTA Tax Rate

The standard FUTA tax rate is 6.0 percent of taxable wages. Most employers who fully pay state unemployment contributions qualify for a credit of up to 5.4 percent, reducing their effective rate to 0.6 percent. Multi-state employers and those operating in credit reduction states must complete additional schedules to determine the correct liability.

Step 4: Adjust for Prior Year Balances

Employers must reconcile unpaid FUTA tax balances or credits from the prior year. Adjustments ensure the total amount reported reflects accurate payroll tax liability. This section must also resolve carryovers from earlier quarters and differences in prior deposits.

Step 5: Report Quarterly Payment Allocations

Employers divide their annual FUTA tax liability into quarterly allocations. When liability exceeds $500 in a quarter, deposits must be made. Correct reporting confirms compliance with federal unemployment deposit requirements and prevents unresolved unpaid tax balances.

Step 6: Reconcile Deposits and Unpaid Tax

This section requires employers to compare deposits made with the total liability calculated. Any unpaid tax must be settled promptly, while overpayments may be refunded or applied toward the next quarter. Accurate reconciliation prevents discrepancies in the annual federal unemployment tax return.

Step 7: Sign and File the Return

The final step is to complete the signature section. The employer must sign and date the return, along with a paid preparer if one is used. Employers can submit the form electronically or by mail, with electronic filing offering greater efficiency and reduced errors.

Employers who follow each step carefully can ensure accurate reporting under the federal unemployment tax act. Tracking FUTA taxable wages, applying the correct tax rate, and reconciling quarterly payment deposits create a reliable process for maintaining compliance and avoiding disputes with the IRS.

IRS Form Adjustments, Multi-State Rules, and Amended Returns

Employers with operations across multiple states or in credit reduction states face additional requirements when filing Form 940. The Internal Revenue Service (IRS) requires employers to account for wages paid in different jurisdictions, credit adjustments, and any corrections to earlier returns. Addressing these elements accurately prevents errors in reporting federal unemployment taxes and ensures employers meet reporting obligations under the Federal Unemployment Tax Act.

Employers must review whether adjustments are needed for unpaid tax balances from earlier years, credits carried forward, or misclassified FUTA taxable wages. Filing an amended return ensures that inaccuracies are corrected formally, providing the federal government with accurate records of payroll tax liability. Multi-state operations require an additional schedule to allocate FUTA taxable wages among states and apply credit reduction rules correctly.

Key Considerations for Adjustments and Multi-State Filings

• Schedule A Requirement: Employers with employees in more than one state must complete Schedule A to allocate wages accurately.
  
  
• Credit Reduction States: When a state has not repaid federal loans, the FUTA credit is reduced, increasing the effective tax liability.
  
  
• Amended Return Filing: Employers file an amended return when previous submissions included errors in wages paid, FUTA tax rate calculations, or quarterly allocations.
  
  
• Stopped Paying Wages: A final return is required when an employer ceases operations or no longer pays wages to employees.
  
  
• Successor Employer Situations: When business ownership changes, liability transfers to a new employer, requiring adjustments to ensure continuity in FUTA reporting.

Managing adjustments, multi-state wages, and amended returns requires careful review of payroll tax records and a structured approach to filing. Employers who document each step, reconcile balances, and apply the correct rules strengthen compliance with the Federal Unemployment Tax Act and reduce the risk of disputes with the IRS.

Avoid Penalties and Resolve Unpaid Tax

Employers who fail to meet their federal unemployment tax obligations may face penalties, interest charges, or enforcement actions. These consequences arise when returns are not filed on time, deposits are missed, or payroll tax liability remains unpaid. Taking proactive measures allows businesses to address issues promptly and restore compliance with the federal unemployment tax act.

Key Actions to Prevent and Resolve Problems

1. File on Time
   Employers must submit the annual federal unemployment tax return by January 31 of the following year or February 10 if all quarterly payment deposits were made on time. Meeting deadlines avoids additional costs of late submission and demonstrates compliance with the Internal Revenue Service (IRS).
   
   
2. Fully Pay FUTA Tax
   Employers are expected to pay the FUTA tax liability reported on the form fully. Partial or delayed payments create unpaid tax balances that accrue interest. Timely payment ensures the federal government receives the funds needed for unemployment benefits.
   
   
3. Deposit Quarterly When Required
   When FUTA tax liability exceeds $500 in a quarter, employers must make a deposit using the Electronic Federal Tax Payment System. Meeting this threshold triggers an obligation to transfer funds immediately rather than waiting until the end of the year. Following quarterly payment rules prevents additional unpaid tax liability and related charges.
   
   
4. Request an IRS Payment Plan for Employment Taxes
   Employers who cannot fully pay their FUTA tax liability may apply for an installment agreement. An IRS payment plan for employment taxes allows businesses to pay over time while remaining compliant. Interest continues to accrue, but the structured arrangement prevents escalation to IRS collection measures such as levies or liens.
   
   
5. Seek First Time Abate Relief
   Employers with a strong compliance history may qualify for First Time Abate, a program that may eliminate specific fees for one tax period. Eligibility requires that all tax returns be filed, outstanding amounts be paid or arranged to be paid, and no similar issues have occurred in the prior three years.
   
   
6. Apply for Reasonable Cause Relief
   Employers can request relief when failure to pay or file is linked to circumstances beyond their control, such as natural disasters or serious illness. Demonstrating reasonable cause with proper documentation may reduce interest charges or penalties related to FUTA tax liability.

These actions strengthen employer compliance and prevent minor mistakes from creating significant problems. A proactive approach ensures accurate reporting of FUTA taxable wages, correct application of the FUTA tax rate, and timely resolution of unpaid tax. Employers who manage obligations in this structured way maintain credibility with the Internal Revenue Service (IRS) and protect their business operations.

Income Tax vs. FUTA and FICA Taxes

Employers are responsible for managing several payroll tax obligations, each supporting different programs within the federal government. Understanding how income tax, FUTA taxes, and FICA taxes differ is necessary to report wages paid and comply with payroll tax rules accurately. Each tax category specifies who pays, what wages are subject, and how revenue is allocated.

Comparison of Payroll Tax Obligations

1. FUTA Tax (Federal Unemployment Tax Act)

• Who Pays: Employers only
• Applied To: The first $7,000 of each employee’s annual wages
• Purpose: Funds federal unemployment benefit programs

2. FICA Taxes (Federal Insurance Contributions Act)

• Who Pays: Both employers and employees
• Applied To: Employee salaries, up to Social Security and Medicare wage limits
• Purpose: Supports the Social Security and Medicare programs

3. Federal Income Tax

• Who Pays: Employees (withheld by employers)
• Applied To: All taxable income earned during the calendar year
• Purpose: Provides general revenue for the federal government

The FUTA tax rate begins at 6.0 percent on FUTA taxable wages, though employers who fully pay state unemployment contributions often receive credits that reduce their effective rate to 0.6 percent. FICA taxes are split between employers and employees, covering Social Security and Medicare. Income tax is withheld by employers throughout the calendar year and forwarded to the Internal Revenue Service (IRS) as part of federal tax collection.

Clear distinctions between these obligations help employers manage payroll tax liability without confusion. By tracking FUTA taxable wages separately from income tax withholding and FICA contributions, businesses meet their reporting obligations accurately. This structured approach ensures the federal government receives unemployment benefits, retirement security, and general operations funds.

Federal Tax Recordkeeping and Compliance

Maintaining accurate records is central to meeting federal unemployment tax obligations. Employers must track wages paid, FUTA taxable wages, and payroll tax deposits throughout the calendar year. These records ensure that the Internal Revenue Service (IRS) can verify compliance with the Federal Unemployment Tax Act and that employers can calculate their tax liability correctly.

Employers are required to keep documentation that supports every amount reported on Form 940. Payroll tax records, employee wage details, and proof of deposits made each quarter all play a role in determining compliance. Organized recordkeeping also simplifies the process of filing amended returns or responding to inquiries from the federal government.

Essential Records to Maintain

• Payroll registers: Show wages paid to each employee and identify FUTA taxable wages.
  
  
• Quarterly deposit confirmations: Verify that federal unemployment taxes were deposited on time when liability exceeded $500.
  
  
• Annual tax return copies: Provide evidence of compliance for each tax year.
  
  
• Employee data: Include names, Social Security numbers, and work performed during the year.
  
  
• Adjustments or amendments: Retain records of amended return filings and supporting explanations.

Employers must retain these records for at least four years after the tax return's due date or when taxes were paid, whichever is later. Proper documentation ensures that federal unemployment taxes are reported accurately and payroll tax liability is clear. Strong compliance practices reduce the likelihood of disputes, unpaid tax balances, or penalties while supporting transparency with the Internal Revenue Service (IRS).

Frequently Asked Questions About 2025 Form 940

Do all employers need to file the annual federal unemployment tax return?

Not all employers must file the annual federal unemployment tax return. Liability begins when wages paid to employees reach $1,500 in a calendar quarter or when one or more employees work for at least 20 weeks. Agricultural employees and household employers follow separate rules. Employers who meet these thresholds must calculate FUTA taxable wages and report liability under the Federal Unemployment Tax Act.

How is the FUTA tax rate determined for 2025?

The FUTA tax rate is 6.0 percent of the first $7,000 of each employee’s wages. Employers who fully pay state unemployment taxes typically qualify for a credit of up to 5.4 percent, reducing the effective FUTA tax rate to 0.6 percent. This structure allows the federal government to collect unemployment contributions while recognizing payroll tax obligations already satisfied at the state level.

What are the rules for agricultural employers?

Agricultural employers must file if they pay $20,000 or more in wages during a calendar quarter or employ 10 or more agricultural employees in at least 20 weeks of the year. Meeting either condition establishes federal unemployment tax liability. Reporting ensures that seasonal and farmworkers receive coverage under the federal unemployment tax act. Employers should maintain detailed payroll tax records to calculate FUTA taxable wages accurately.

How does household employment affect FUTA obligations?

Household employers must file when they pay employees $1,000 or more in cash, such as caregivers or housekeepers, in a calendar quarter. Once this threshold is met, the wages paid are subject to FUTA tax reporting. Filing ensures proper calculation of payroll tax liability under the annual federal unemployment return. Household employers are fully responsible for compliance since employees do not contribute to FUTA taxes.

Can employers correct errors on previously filed returns?

Employers who discover mistakes must file an amended return. Corrections may involve adjustments to FUTA taxable wages, prior quarterly payment allocations, or the calculation of tax liability. Filing an amended return provides the Internal Revenue Service (IRS) with accurate payroll tax records and ensures compliance under the Federal Unemployment Tax Act. Businesses should maintain supporting documentation to verify changes and protect against disputes regarding wages paid or liability.

What happens if the FUTA tax liability is less than $500 in a quarter?

Employers are not required to immediately deposit when the FUTA tax liability is less than $500 for a calendar quarter. Instead, the balance carries forward to the next quarter until the total exceeds $500. Any remaining liability must be paid with the annual federal unemployment return. This rule streamlines payroll tax compliance while ensuring the federal government receives the correct total amount each tax year.

How do FUTA taxes differ from income tax and FICA taxes?

FUTA taxes are paid solely by employers to fund unemployment benefits, while income tax is withheld from employees’ wages and remitted to the federal government. FICA taxes are shared between employers and employees to cover Social Security and Medicare. Understanding these differences ensures payroll tax liability is calculated correctly. Employers who separate FUTA taxable wages from income tax and FICA withholding maintain accurate reporting throughout the calendar year.