Form 940 (2023) – Employer’s Annual Federal Unemployment (FUTA) Tax Return
Purpose
Form 940 reports the annual Federal Unemployment Tax Act (FUTA) tax liability for employers. For 2023, the effective FUTA tax rate is 0.6% (0.006) on taxable wages up to $7,000 per employee annually after applying the maximum state unemployment tax credit. The statutory FUTA rate is 6.0% before credits. Multi-state employers must complete Schedule A to report state unemployment tax credit reduction issues or multi-state wage allocation. Final returns for business closure require explicit designation in Part 1.
Filing Steps
Step 1: Verify EIN and Classify Return Type
Confirm your employer identification number matches IRS records exactly. If you haven’t received your EIN by the due date, write “Applied For” and the application date in the EIN space. If you have your EIN, enter the complete nine-digit number on both pages. In Part 1, check all applicable boxes: “Amended” if correcting a 2023 return, “Successor Employer” if business ownership changed and you’re reporting predecessor wages, “No Payments to Employees in 2023” if you paid zero wages, or “Final” if your business closed or stopped paying wages.
Step 2: Calculate Total Payments and Identify Exemptions (Lines 3-4)
On Line 3, sum all gross wages paid to employees during 2023, including salaries, bonuses, commissions, taxable fringe benefits, and wages paid to officers and directors before any deductions. On Line 4, total all FUTA-exempt payments, such as fringe benefits, group-term life insurance, retirement contributions, dependent care assistance, and other exclusions, per Internal Revenue Code Section 3306. Consult Instructions for Form 940 and Publication 15 for guidance on exempt payment categories.
Step 3: Report Excess Wages and Calculate Taxable FUTA Wages (Lines 5-7)
On Line 5, calculate the total wages exceeding $7,000 per employee for 2023, as only the first $7,000 per employee is subject to FUTA tax. On Line 7, subtract Lines 4, 5, and 6 from Line 3 to determine total taxable FUTA wages. This amount serves as the foundation for computing your FUTA tax liability.
Step 4: Complete Schedule A for Multi-State or Credit Reduction States (Lines 1b-2)
If you paid wages in more than one state during 2023, check the box on line 1b and complete Schedule A. If you paid wages in any credit reduction state, check the box on line 2 and complete Schedule A. For 2023, the states with credit reduction rates are California (0.6%), New York (0.6%), and the U.S. Virgin Islands (3.9%). Schedule A allocates taxable wages by state and calculates credit reduction adjustments. This form is mandatory for multi-state employers and those with employees in states with credit reduction provisions.
Step 5: Calculate FUTA Tax Before Adjustments (Line 8)
Multiply Line 7 by 0.006 to calculate FUTA tax before adjustments. The factor 0.006 represents the effective FUTA tax rate of 0.6% after applying the maximum state unemployment tax credit of 5.4%. Enter the results on Line 8. Do not round until making final deposit or payment calculations.
Step 6: Determine State Unemployment Tax Adjustments (Lines 9-11)
If all taxable FUTA wages were excluded from state unemployment tax, multiply Line 7 by 0.054 and enter on Line 9. If some wages were excluded from state unemployment tax or you paid state unemployment tax after the Form 940 due date, complete the worksheet in the instructions and enter on Line 10. Typically, only Lines 9 or 10 apply. On Line 11, enter the credit reduction amount from Schedule A if you paid wages in a credit reduction state. This adjustment increases your FUTA tax liability for states with outstanding federal unemployment insurance loans.
Step 7: Calculate Total FUTA Tax and Balance Due (Lines 12-15)
Add Lines 8 and 11, then subtract Lines 9 and 10 to determine the total FUTA tax after adjustments on Line 12. This is your total FUTA tax liability for 2023. On Line 13, enter total deposits made during 2023. Calculate the balance due on Line 14 or the overpayment on Line 15 based on the difference between Lines 12 and 13. If your balance due is $500 or less, you may pay with Form 940 using Form 940-V. If it exceeds $500, you should have deposited it electronically.
Step 8: Report Quarterly Tax Liability if Line 12 Exceeds $500 (Part 5, Lines 16-17)
Complete Part 5 only if Line 12 exceeds $500. If Line 12 is $500 or less, skip Part 5. Report actual tax liability incurred in each quarter, not deposits made. Enter amounts for Line 16a (January 1-March 31), Line 16b (April 1-June 30), Line 16c (July 1-September 30), and Line 16d (October 1-December 31). Leave quarters blank if no liability occurred. Copy Line 12 to Line 17. Your Line 17 must equal Line 12. Calculate Line 16d by subtracting the sum of Lines 16a, 16b, and 16c from Line 17. In credit reduction years, include credit reduction liabilities with fourth quarter amounts on Line 16d.
Step 9: Complete Third-Party Designee Authorization (Part 6)
Indicate whether you authorize an employee, paid tax preparer, or other person to discuss your Form 940 with the IRS. If yes, provide the designee’s name, phone number, and a five-digit personal identification number. If not, check the appropriate box. This authorization allows the IRS to contact your designee regarding questions about your return.
Step 10: Sign, Attach Schedules, and File (Part 7)
An authorized person must sign the form. Sole proprietors must sign personally. Corporate officers, partners, or LLC members must sign with their title. Enter name, title, and date. Paid preparers must also sign and provide their Taxpayer Identification Number. Attach Schedule A if completed for multi-state or credit reduction reporting. Attach Schedule R if you’re an approved section 3504 agent or certified professional employer organization filing an aggregate return.
Filing Deadlines and Payment Instructions
Filing Deadline
File Form 940 by January 31, 2024. However, if you have deposited all FUTA tax by the due date, you may file by February 12, 2024. If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day.
Payment Methods
Make deposits by electronic funds transfer using the Electronic Federal Tax Payment System (EFTPS). If your fourth-quarter FUTA tax liability (plus any undeposited amounts from earlier quarters) is $500 or less, you may pay with Form 940 using payment voucher Form 940-V. Complete Form 940-V by entering your EIN in Box 1 (or “Applied For” with date if pending), the payment amount in Box 2, and your business name and address in Box 3. Make checks or money orders payable to “United States Treasury” and write your EIN, “Form 940,” and “2023” on the payment. Do not staple Form 940-V or your payment to Form 940.
Mailing Addresses
Submit Form 940 electronically or mail it to the appropriate IRS address. If filing without payment, use the Kansas City, MO 64999-0046 address for eastern states or the Ogden, UT 84201-0046 address for western states and territories. If filing with payment, mail to Cincinnati, OH 45280-6531 for eastern states or Louisville, KY 40293-2000 for western states and territories. Refer to the Instructions for Form 940 for specific state assignments and exceptions applicable to tax-exempt organizations and government entities.
Important Reminders
Deposit Requirements
You must deposit FUTA tax by the last day of the month following the end of any quarter when your cumulative undeposited FUTA tax exceeds $500. First-quarter deposits are due by April 30, second-quarter deposits by July 31, third-quarter deposits by October 31, and fourth-quarter deposits by January 31. In credit reduction years, include any credit reduction liabilities with your fourth-quarter deposit.
Record Retention
Maintain payroll records, tax returns, and proof of deposits for at least four years after the due date of the return or the date the tax was paid, whichever is later. Keep records showing total payments to employees, exempt payments, state unemployment tax payments, and FUTA tax deposits.
Amending Returns
To amend a 2023 Form 940, use a paper return even if the original was filed electronically. Check the “Amended” box in Part 1, fill in all corrected amounts, attach an explanation of changes, and sign the form. File amended returns using the “without payment” mailing address. Beginning in 2024, electronic filing of amended returns may become available through Modernized e-File.
Penalties and Interest
Avoid penalties by depositing and paying tax when due, filing complete and accurate returns on time, attaching required schedules, and ensuring payments are honored by your financial institution. Late filing, late payment, and failure to deposit penalties apply at rates set by law. Use Form 843 to request penalty or interest abatement after receiving an IRS notice.
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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.
