What IRS Form 940 (2016) Is For

IRS Form 940 (2016) reports an employer’s annual federal unemployment tax liability. It ensures compliance with the Federal Unemployment Tax Act, which helps collect funds for unemployment insurance. This form covers wages paid to employees and credits for state unemployment taxes. It also determines the amount of FUTA tax owed to the federal government.

Employers use this form to report total wages, calculate the amount of taxable wages under FUTA, and claim available credits for state unemployment tax payments. Filing accurately helps businesses avoid penalties and interest while ensuring that federal and state unemployment systems remain properly funded.

When You’d Use Form 940 for 2016 (Late or Amended Filing)

Employers may still need to file or amend Form 940 for the 2016 tax year if they missed their filing obligation or found an error on a prior submission. Common reasons include missed filings, underreported wages, or corrections to state unemployment tax payments made after the original filing date. The due date was either January 31, 2017, or February 10, 2017, depending on whether all FUTA deposits were made on time.

Late filings after this date may result in penalties and interest, typically 5 percent per month on unpaid taxes, up to a maximum of 25 percent. Employers submitting an amended return must check the “amended return” box at the top of the form and include an explanation of changes. Filing promptly helps maintain compliance and prevents additional IRS notices or penalties.

Key Rules Specific to 2016

The FUTA tax rate for 2016 was 6.0 percent on the first $7,000 of wages paid to each employee per year. Employers could receive a credit of up to 5.4 percent for timely state unemployment tax payments, resulting in an effective FUTA tax rate of 0.6 percent for most businesses. Several states were designated as credit reduction states that year, requiring additional FUTA tax payments through Schedule A (Form 940).

The wage base remained $7,000 per employee, and deposits were required once the cumulative FUTA tax exceeded $500 in any quarter. Employers could carry smaller balances forward to the next quarter until the total reached $500 or more. All deposits were made through an approved financial institution or the Electronic Federal Tax Payment System (EFTPS) to ensure accurate and timely collection of unemployment funds.

Step-by-Step (High Level)

Employers can complete the filing process for Form 940 (2016) by following these general steps.

1. Gather records: Collect payroll summaries, wage records, and proof of state unemployment tax payments. Review prior returns and any previous amended forms to ensure consistency across reporting periods.
2. Complete the correct form: Download the official 2016 version of Form 940 from the IRS website—complete Parts 1 through 7, including Schedule A if wages were paid in any credit reduction state. Use accurate figures for salaries paid and taxable amounts.
3. Calculate and verify amounts: Calculate total FUTA wages, credits for state unemployment tax payments, and any additional amounts due for credit reduction states. Verify that calculations align with state filings and that all payments are properly documented.
4. Submit and retain records: Mail the completed form to the address listed in the IRS instructions for Form 940. Submit payment for any balance due, or confirm that prior deposits cover the total liability. Retain a copy of the filed return and supporting documents for business records.

Following these steps ensures the form is completed correctly and reduces the likelihood of IRS correspondence or adjustments later.

Common Mistakes and How to Avoid Them

Employers often make simple but costly errors when filing Form 940. The following are some of the most common mistakes and how to prevent them:

• Using the wrong form version: Use the correct 2016 Form 940 to ensure proper processing and avoid delays or rejections.
  
  
• Omitting Schedule A (Form 940): Check whether your state is a credit reduction state and attach Schedule A if required to report the correct credit reduction rate.
  
  
• Misreporting the FUTA wage base: Confirm that no more than $7,000 per employee is reported as taxable wages before filing.
  
  
• Forgetting to mark the “amended return” box: Always check the “amended return” box when submitting a corrected return so the IRS can identify it as revised.
  
  
• Missing quarterly deposits: Track quarterly FUTA liability and make deposits on time when the amount exceeds $500 to avoid penalties.
  
  
• Including exempt wages: Review FUTA exemption rules carefully and exclude wages that are not subject to FUTA tax, such as certain fringe benefits or payments to exempt employees.

By reviewing IRS instructions carefully and double-checking all figures before submission, employers can prevent unnecessary penalties and ensure accurate reporting.

What Happens After You File

Once the IRS receives Form 940, processing usually takes several weeks to a few months, depending on the complexity of the return. Employers may receive notices requesting clarification, additional documentation, or payment of any remaining balance due. If a taxpayer cannot pay the total amount owed, they may request a payment plan through the IRS using Form 9465.

If an overpayment is identified, the IRS may issue a refund or apply the credit toward future liabilities. When a balance remains unpaid, penalties and interest will continue to accrue until the total is settled. Responding promptly to all IRS notices helps protect appeal rights and ensures compliance with federal filing requirements.

FAQs

Frequently Asked Questions

Can employers still file IRS Form 940 (2016) if it was never submitted?

Yes, employers can still file IRS Form 940 (2016) to report unpaid tax for the 2016 tax year. Filing ensures compliance with the Federal Unemployment Tax Act and helps avoid additional penalties and interest.

What is the penalty for filing Form 940 after the due date?

Late filings may incur a 5 percent monthly penalty on unpaid tax, up to 25 percent. Interest continues to accrue until the total amount is paid in full. Filing and paying promptly helps employers avoid further charges.

How does the credit reduction affect FUTA tax for 2016?

Employers in credit reduction states paid more FUTA tax because state unemployment loans were not fully repaid. The credit reduction increased the total FUTA liability reported on Form 940 for that year.

Can an employer amend Form 940 for 2016 after filing?

Yes, employers can file an amended return to correct errors or adjust state unemployment tax credits. Checking the amended box and submitting the corrected form helps ensure accurate reporting and reduces the likelihood of issues with the IRS.

What wages are subject to FUTA tax under the Federal Unemployment Tax Act?

FUTA tax applies to the first $7,000 of each employee’s wages paid during the tax year. Certain payments, such as fringe benefits or retirement contributions, may be excluded from federal unemployment taxes.