Form 940 (2019) Tax Year Checklist
PURPOSE
Form 940 reports annual Federal Unemployment Tax Act (FUTA) liability for employers. For 2019, the taxable wage base remains subject to a cap of $7,000 per employee. The statutory FUTA tax rate is 6.0% on taxable wages, though most employers receive a maximum credit of up to 5.4% for state unemployment taxes paid, resulting in an effective rate of 0.6%. Multi-state employers must complete Schedule A to report credit-reduction state obligations and wages subject to reduced federal credits.
COMPLETION STEPS
Step 1: Verify Entity Information and Return Type
Confirm your employer identification number (EIN) is entered correctly in the header. Review the return type boxes at the top of the form and check all that apply to your situation. Mark the box as “Amended” if you are filing Form 940 to correct a prior return from 2019. Mark “Successor employer” if you took over payroll operations mid-year and acquired all the property of a business from a predecessor while employing one or more people that the predecessor employed.
Mark “No payments to employees in 2019” if wages were paid in prior years only and you made no employee payments during 2019, then proceed directly to Part 7 to sign and file. Mark “Final” if your business ceased operations or stopped paying wages during 2019, and you won’t be liable for filing Form 940 in the future. You may select more than one box if applicable; however, most regular returns will leave all of these boxes unchecked.
Step 2: Complete Part 1 State Unemployment Tax Reporting
Enter the state abbreviation on Line 1a if you paid unemployment insurance tax in exactly one state during 2019. If wages were paid and state unemployment tax was due in two or more states, verify Line 1b and complete Schedule A (Form 940) as a multi-state employer. If any state in which you paid wages is subject to credit reduction under IRC Section 3302(c), check Line 2 and attach Schedule A showing the credit-reduction calculation for that state.
For 2019, the U.S. Virgin Islands was the only state with a credit reduction. You must complete Line 1a or Line 1b even if you weren’t required to pay any state unemployment tax because your state rate was zero, unless all wages you paid were excluded from the state unemployment tax.
Step 3: Calculate Total Payments and Identify Exemptions
Enter on Line 3 the gross total of all payments made to all employees during 2019, including wages, salaries, bonuses, and taxable fringe benefits. On Line 4, identify and total all payments exempt from FUTA tax for 2019 by selecting applicable categories: fringe benefits (4a), group-term life insurance (4b), retirement or pension contributions (4c), dependent care benefits (4d), or other qualifying exemptions (4e).
The 2019 instructions do not expand or modify the list of exempt payment categories from prior years. Wages may be subject to FUTA tax even if they are excluded from your state’s unemployment tax, so review this distinction carefully when completing your calculations.
Step 4: Apply the $7,000 Annual Wage Cap
On Line 5, calculate the total of all payments made to each employee that exceed $7,000 during the 2019 calendar year. Sum all per-employee excess amounts to determine wages outside the FUTA taxable wage base. The $7,000 threshold remains unchanged for 2019 and applies on a per-employee basis, regardless of when the employee was hired during the year. Do not annualize wages or prorate for employees who work for only part of the year. Use actual cumulative calendar-year payments only, counting from January 1 through December 31, 2019, for each employee to determine what portion exceeds the $7,000 cap.
Step 5: Derive Taxable FUTA Wages
On Line 6, add Line 4 (exempt payments) and Line 5 (excess wages over $7,000 per employee) together. On Line 7, subtract Line 6 from Line 3 to obtain total taxable FUTA wages. This figure represents wages subject to FUTA tax calculation before applying the credit for state unemployment taxes paid.
Review these calculations for accuracy, as errors in Lines 3 through 7 will propagate through all downstream calculations and affect your final tax liability. Ensure that Line 7 accurately reflects only those wages paid to employees and subject to FUTA taxation, after removing exempt payments and amounts exceeding the wage cap.
Step 6: Compute FUTA Tax Before Adjustments
On Line 8, multiply Line 7 (taxable FUTA wages) by 0.006 to calculate FUTA tax before adjustments. This represents your tax obligation, assuming you qualify for the highest state unemployment credit of 5.4%, which reduces the statutory FUTA rate of 6.0% to an effective rate of 0.6%.
This is the base federal unemployment tax obligation before any additional adjustments for wages excluded from state unemployment tax or credit reductions. Do not round intermediate calculations, but carry full cents to Line 8 for accuracy in determining your final liability.
Step 7: Apply Adjustments in Part 3 Based on State Unemployment Tax Status
Part 3 involves mutually exclusive calculations; therefore, carefully determine which one applies to your situation. If all taxable FUTA wages were excluded from state unemployment tax, multiply Line 7 by 0.054 and enter the result on Line 9, then leave Lines 10 and 11 blank and proceed to Line 12. If some wages were excluded from state unemployment tax or any state unemployment tax was paid late after the filing deadline, complete the worksheet provided in the 2019 Form 940 instructions and enter the result on Line 10.
If credit reduction applies as determined on Line 2, enter the total adjustment amount from Schedule A (Form 940) on Line 11. Note that if Line 9 applies to you and contains an amount, then Lines 10 and 11 do not apply and must remain blank, as these lines cannot be used simultaneously.
Step 8: Calculate Final FUTA Tax and Balance Due or Overpayment
On Line 12, add Lines 8, 9, 10, and 11 together to determine your total FUTA tax after adjustments. On Line 13, enter the total FUTA tax you deposited during the year, including any overpayments from the prior year. If Line 12 exceeds Line 13, enter the difference on Line 14 as your balance due.
If Line 14 is more than $500, you must deposit your tax using an electronic funds transfer. If Line 14 is $500 or less, you may pay with your return. If Line 13 exceeds Line 12, enter the excess on Line 15 as an overpayment and indicate whether you want to apply it to your next return or receive a refund.
Step 9: Report Quarterly Tax Liability
Complete Part 5 only if Line 12 exceeds $500. If Line 12 is $500 or less, skip Part 5 and proceed to Part 6. Report the amount of your FUTA tax liability for each quarter on Lines 16a–16d, entering the liability amounts rather than deposit amounts.
If there was no liability for a particular quarter, please leave that line blank. On Line 17, add Lines 16a, 16b, 16c, and 16d together. The total on Line 17 must equal the total on Line 12. This reconciliation ensures that your quarterly liability calculations align with your annual tax obligation, helping to identify any discrepancies before filing.
Step 10: Designate Third-Party Representative
In Part 6, indicate whether you want to allow an employee, paid tax preparer, or another person to discuss this return with the IRS. If you select “Yes,” provide the designee’s name and phone number, then choose a five-digit Personal Identification Number (PIN) for the designee to use when communicating with the IRS about this return.
If you select “No,” leave this section blank. This designation allows your chosen representative to answer IRS questions about the preparation and completion of your Form 940. Still, it does not authorize them to receive refunds, bind you to additional tax liabilities, or otherwise represent you beyond discussing this specific return.
Step 11: Sign and Date the Return
Complete Part 7 by signing your name, printing your name and title, entering the date, and providing your best daytime phone number. You must complete both pages of Form 940 before signing. Under penalties of perjury, you declare that you have examined the return, including accompanying schedules and statements. To the best of your knowledge and belief, it is true, correct, and complete.
You also state that no part of any payment made to a state unemployment fund claimed as a credit will be or has been deducted from employee payments. If a paid preparer completed your return, that person must also sign, date, and provide their information in the designated area.
Step 12: File the Return by the Due Date
The due date for filing Form 940 for 2019 is January 31, 2020. However, if you deposited all your FUTA tax when it was due throughout the year, you may file Form 940 by February 10, 2020. Mail your return to the appropriate IRS address based on your location and whether you are including a payment.
Your return will be considered filed on time if the envelope is properly addressed with sufficient postage and postmarked by the U.S. Postal Service on or before the due date, or if an IRS-designated private delivery service sends it on or before the due date. Attach Schedule A (Form 940) if you are a multi-state employer or paid wages in a credit reduction state. Attach Schedule R (Form 940) if you are filing an aggregate Form 940 as an agent or certified professional employer organization.
DEPOSIT REQUIREMENTS
Understanding Quarterly Deposit Obligations
Although Form 940 covers a calendar year, you may be required to deposit your FUTA tax before filing your return. Determine your deposit requirements based on quarterly tax liability calculations. If your FUTA tax liability is $500 or less in a quarter, carry it forward to the next quarter. Continue holding your tax liability forward until your cumulative tax exceeds $500, at which point you must deposit your tax by the last day of the month following the end of that quarter.
For the fourth quarter, if your liability plus any undeposited amounts from earlier quarters exceeds $500, deposit the entire amount by January 31, 2020. If the fourth quarter amount is $500 or less, you may either deposit it or pay it with your Form 940.
Calculating Quarterly Tax Liability
To determine your quarterly tax liability, calculate how much of the first $7,000 of each employee’s annual wages you paid during that specific quarter. Add the first $7,000 of each employee’s wages subject to FUTA tax for the quarter, then multiply that total by 0.006, which assumes you qualify for the maximum 5.4% state unemployment tax credit.
If any wages subject to FUTA tax are not subject to state unemployment tax, such as wages paid to corporate officers in certain states or specific fringe benefits excluded from state unemployment tax, you may be liable for FUTA tax at the higher rate of 6.0%. In such cases, multiply those wages by 0.060 instead of 0.006 when calculating your liability.
Making Electronic Deposits
You must use an electronic funds transfer to make all federal tax deposits. The Electronic Federal Tax Payment System (EFTPS) is the primary method for making these deposits. Enroll at EFTPS.gov or call 800-555-4477 for assistance with enrollment. If your business is new, the IRS automatically pre-enrolls you in EFTPS when you apply for an EIN, and you must follow the instructions in your EIN package to activate your enrollment.
For an EFTPS deposit to be considered timely, you must submit the transaction by 8 p.m. Eastern time the day before the deposit due date. Alternatively, you can arrange for your tax professional, financial institution, payroll service, or other trusted third party to make electronic deposits on your behalf, or you may arrange for your financial institution to initiate a same-day wire payment if you miss the EFTPS deadline.
SPECIAL SITUATIONS
Amending a Previously Filed Return
Use the 2019 Form 940 to amend a return you previously filed for 2019. Check the “Amended” box in the top right corner of Form 940, page 1, box a. Fill in all amounts that should have been on the original form, rather than just the changes or corrections. Sign the form and attach a detailed explanation of why you are amending your return, such as claiming credit for state unemployment tax paid after the original filing deadline or correcting calculation errors.
File the amended return using the “Without a payment” mailing address, even if you are including a payment. If you are amending an aggregate Form 940, attach Schedule R (Form 940) and complete it only for employers who have adjustments on the amended return.
Successor Employer Situations
If you are a successor employer that acquired a business during 2019, you may have special reporting requirements. Include on your Form 940 any wages you paid after acquiring the company, as well as wages paid by the predecessor if certain conditions are met. You may be eligible for credit based on state unemployment taxes paid by the predecessor before you acquired the business if the predecessor was not required to file Form 940 because they were not an employer for FUTA purposes.
Report wages paid by a predecessor who was required to file Form 940 on Line 5 as payments in excess of $7,000 if the predecessor already paid FUTA tax on the first $7,000 of those employees’ wages. This prevents double taxation on the same salaries and ensures accurate liability calculations.
Multi-State Employer Requirements
If you paid wages and were required to pay state unemployment tax in more than one state during 2019, you must complete Schedule A (Form 940) in addition to Form 940. On Schedule A, list each state where you paid wages subject to that state’s unemployment tax and enter the total taxable FUTA wages subject to each state’s unemployment compensation law.
Do not include wages in excess of $7,000 per employee or wages excluded from state unemployment tax on Schedule A. The total FUTA taxable wages on Schedule A should match the amount on Line 7 of Form 940. Schedule A helps determine your proper credit for state unemployment taxes when you operate in multiple jurisdictions.
Credit Reduction State Considerations
A credit reduction state has not repaid money borrowed from the federal government to pay unemployment benefits. For 2019, the U.S. Virgin Islands was the only state with a credit reduction, at a 2.7% rate. If you paid wages subject to the unemployment tax laws of a credit reduction state, you must pay additional FUTA tax when filing Form 940.
Complete Schedule A (Form 940) to calculate the additional tax due. The credit reduction increases your effective FUTA tax rate on wages paid in that state because the credit reduction percentage reduces the normal 5.4% credit against the 6.0% FUTA rate.
AVOIDING PENALTIES
Timely Filing and Payment
Avoid penalties and interest by depositing and paying your tax when due, filing your fully completed Form 940 accurately and on time, attaching Schedule R if required, and ensuring your tax payments are honored by your financial institution. Penalties and interest are charged on taxes paid late and returns filed late at rates set by law. If any deposit due date falls on a Saturday, Sunday, or a legal holiday, you may deposit on the next business day.
A business day is any day apart from a Saturday, Sunday, or legal holiday in the District of Columbia. Do not attach explanations about potential penalties when you file your return, but if you receive a penalty notice after filing, reply to that notice with an answer, and the IRS will determine if you meet reasonable-cause criteria for abatement.
Record Retention Requirements
Keep all payroll records that support the amounts reported on your Form 940 for at least four years after the due date of the return or after the tax is paid, whichever is later. These records should include employee names, Social Security numbers, dates of employment, total compensation paid, dates and amounts of tax deposits made, copies of returns filed, and proof of state unemployment tax payments.
If you file a final return because your business closed, attach a statement showing the name of the person keeping the payroll records and the address where those records will be kept. Proper record retention protects you in case of an IRS examination and helps ensure accurate reporting in future years.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
