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IRS Form 940 (2016): Employer's Annual FUTA Return
Download, file, or correct your 2016 federal unemployment tax return—even if you missed the original deadline or need to amend a prior submission for compliance with IRS requirements.
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What Is This Form
Employers file Form 940 to report their annual federal unemployment tax liability under the Federal Unemployment Tax Act. It covers wages paid to employees throughout 2016 and determines the amount of FUTA tax owed after applying any available state unemployment tax credits.
Late Filers
Employers missing the January 31, 2017, deadline may still file Form 940 for 2016 FUTA reporting, though penalties and interest continue accruing until paid.
Multiple Income Sources
Businesses with employees in multiple states must track each state's unemployment tax payment and determine whether any 2016 credit reduction affects FUTA liability.
Itemizing Deductions
Employers claiming state unemployment tax credits must ensure that all filings are timely and applied accurately against the 6.0 percent FUTA tax rate.
Claiming 2016 Credits
The maximum credit for 2016 was 5.4 percent when state unemployment taxes were paid on time, effectively reducing the FUTA net tax rate.
IRS Compliance
Accurate Form 940 filing helps employers avoid IRS penalties, correspondence, and errors, ensuring FUTA tax reporting is correct and properly reconciled with payments.
Citizens Abroad / Military
Wages paid for services outside the U.S. may qualify for FUTA exemptions, requiring employers to review statutory rules before including them in taxable wages.
Eligibility
Form 940 for 2016 applies to employers who met the FUTA filing tests in 2015 or 2016, including late filers and amended returns, based on wages or employee-week thresholds set by federal law.
Late Filers
Employers missing the January 31, 2017, or February 10, 2017, deadlines may still file Form 940 for 2016 to report liability and reduce penalties.
Multiple Income Sources
Employers with payroll across multiple states must reconcile unemployment tax payments and attach Schedule A if designated for a credit reduction for 2016.
Itemizing Deductions
Businesses may claim up to 5.4 percent FUTA credit if state unemployment taxes were paid by the applicable due date.
Claiming 2016 Credits
On the first $7,000 of wages per employee, a full 5.4 percent credit reduces net FUTA tax to 0.6 percent, lowering liability.
IRS Compliance
Accurate Form 940 filing reduces reporting errors and penalties, but does not guarantee protection from an IRS examination or audit of submitted information.
Citizens Abroad / Military
Wages for services outside the United States may qualify for a FUTA exemption depending on employment category, and employers must verify statutory rules before reporting.
Step-by-Step
Follow the steps below to complete your 2016 Form 940 accurately, keeping in mind that several requirements — including credit reduction rules and deposit thresholds — are specific to this tax year.
1. Gather Your Documents Before Starting
Collect payroll summaries, wage records, quarterly deposit confirmations, and proof of state unemployment taxes for 2016. Also, review prior Form 940 filings to ensure consistency, identify discrepancies early, and correct errors before submitting your return to the IRS.
2. Choose the Correct Filing Status (2016)
Confirm you are using the official 2016 Form 940, not a prior or later year version. Check the applicable boxes, including amended return, successor employer, no payments made in 2016, and final return. Avoid outdated labels or misclassification, as incorrect selection may cause IRS processing delays, corrections, or rejection of the return.
3. Report All Income on the Correct Lines
Report total employee wages on Line 1, including all cash wages and compensation paid during 2016. Exclude exempt payments such as fringe benefits and retirement contributions. Enter FUTA-taxable wages on Line 2, capped at $7,000 per employee. Include any 2016-specific taxable wage adjustments required under federal unemployment insurance rules carefully.
4. Calculate Adjusted Gross Income (AGI)
Begin with total taxable FUTA wages, then apply allowable adjustments such as exempt wages and state unemployment tax credits. AGI determines your taxable base for FUTA calculations and directly controls your final federal unemployment tax liability before credits are applied.
5. Choose Your Deductions and Apply Exemptions (2016 Only)
For 2016, the FUTA wage base is limited to $7,000 per employee. Deduct exempt wages, including certain fringe benefits and retirement contributions, before calculating taxable FUTA wages. Standard deduction rules do not apply to Form 940; instead, employers must carefully follow the FUTA-specific exclusions and reporting requirements defined in the official IRS 2016 unemployment tax regulations.
6. Claim the 2016-Specific Credit (2016 Only)
Claim up to a 5.4 percent credit for timely state unemployment taxes paid in 2016. If applicable, attach Schedule A for credit reduction states. This reduces net FUTA tax liability and must be properly documented on Form 940.
Filing Deadline — January 31, 2017
The due date for Form 940 (2016) was January 31, 2017, though employers who timely deposited all FUTA taxes received an extended filing deadline of February 10, 2017. Late returns accrue penalties and interest from the original due date until fully resolved by payment.
Refund Deadline — Likely Expired
Under general IRS refund limitation rules, employers typically had three years from the date of filing or two years from the date of payment to request refunds for overpaid 2016 FUTA taxes. Most refund windows closed around January 31, 2020, though limited exceptions may still apply in qualifying circumstances.
Processing Time — Allow Several Months
The IRS may take several weeks or months to process paper-filed Form 940 returns for 2016, especially during high-volume periods. Employers should generally wait at least 6 to 8 weeks before requesting transcripts and promptly pay outstanding balances to minimize ongoing interest and penalty accrual.
Amended Return Rules
Employers correcting wage reporting, credit calculations, or state unemployment tax payment errors for 2016 must file a corrected 2016 Form 940. Check the Amended return box and attach a written explanation of all revisions so the IRS can properly distinguish corrected filings from duplicate return submissions.
Missing W-2s or Tax Records for 2016?
Employers filing late may no longer have complete payroll records available. Still, IRS transcripts and supporting financial documents can help reconstruct the information needed to prepare an accurate return and properly satisfy federal requirements for unemployment tax reporting.
IRS Wage & Income Transcript
This transcript shows 2016 wage and income data reported by employers and payroll processors, primarily for individual tax filing, but it may also assist employers in reconstruction.
IRS Account Transcript
This transcript records tax assessments, payments, penalties, and filing activity for the 2016 tax period, helping employers confirm prior Form 940 submissions and FUTA deposits.
Social Security Administration
Employees may request wage records from the SSA, but employers should rely primarily on retained payroll records and IRS business account data for accurate 2016 reconstruction.
Contact Prior Employers
Federal law requires payroll records to be retained for at least 4 years, so prior employers or payroll providers may still hold the relevant 2016 documentation.
Filing late is always better than not filing at all, since failure-to-file penalties exceed failure-to-pay penalties, even when records remain incomplete.
Missing W-2s or Tax Records?
You can still complete your return even without original records
Penalties and interest on unpaid 2016 FUTA taxes have been accruing since the original January 31, 2017, deadline. Filing now stops the failure-to-file penalty from continuing to increase, even if the full balance cannot be paid immediately.
Failure-to-File Penalty
(5% per month, up to 25%)
This penalty applies monthly after the due date until the return is filed, up to 25 percent of the unpaid tax. It is reduced by any failure-to-pay penalty assessed for the same month when both penalties apply simultaneously.
Failure-to-Pay Penalty
(0.5% per month + interest)
This penalty applies to unpaid tax after the due date and continues monthly until the tax is paid in full. Interest also accrues on both the tax and penalties, increasing total liability until the IRS receives full settlement.
Penalty Abatement Options
(First-Time Abatement & Reasonable Cause)
The IRS may grant a first-time abatement to compliant taxpayers with a clean three-year history. Reasonable cause relief may also apply, case by case, though reliance on a tax professional alone is generally insufficient.
Filing late is better than not filing, since the failure-to-file penalties exceed failure-to-pay penalties, and filing promptly reduces total IRS penalties and the amount owed.
These are the most common errors that cause IRS delays, corrections, or missed credits on 2016 Form 940 filings.
- Using the wrong tax year form — Submitting any Form 940 version other than 2016 can cause IRS processing delays, incorrect reporting, and potential rejection of the return.
- Missing Schedule M / 2016-specific credit — Failing to attach Schedule A when required for credit reduction states understates FUTA liability and triggers IRS adjustments or additional assessments.
- Wrong filing status label — Not selecting the correct box, such as Amended or Final return, may cause the IRS to misclassify the filing or delay processing.
- Applying Pease limitations incorrectly — Excluding wages or overstating exemptions distorts the taxable FUTA wage base, leading to inaccurate tax calculations and potential IRS penalties.
- Treating unemployment compensation as partially tax-free — State credits apply only if payments were made on time; late payments reduce eligibility for the full FUTA credit under federal government rules.
- Assuming a refund is still available — Most 2016 FUTA refund claims are time-barred, and assuming eligibility may result in denied claims or compliance issues with the IRS and federal reporting requirements.
- Missing or incorrect Social Security numbers — Payroll record errors can create compliance issues and mismatches, even though Form 940 itself uses the employer’s EIN for identification.
- Unsigned return — A Form 940 without an authorized signature is considered invalid and will be rejected by the IRS as an incomplete filing.
- Missing attachments — Omitting required Schedule A (Form 940) or other supporting forms can result in IRS corrections, delays, or reassessment of liability.
What is IRS Form 940 (2016) used for?
Employers use Form 940 for 2016 to report federal unemployment payroll tax under FUTA, calculating liability on wages paid to workers during the calendar year and applying available credits from state unemployment contributions made on behalf of employees by corporations or businesses.
Can I still file a 2016 Form 940?
Yes, employers may still file Form 940 for 2016 in the current year after the deadline. Filing stops failure-to-file penalties from increasing by a partial month, though interest, withholding adjustments, and the total amount due continue until fully paid to the IRS.
What was the FUTA tax rate for 2016?
The 2016 FUTA payroll tax rate was 6.0 percent on wages up to $7,000 per worker per calendar quarter, with available credits reducing liability. The difference between the gross and net rates depends on timely state payments, withholding, and corporate compliance.
What is a credit reduction state, and how does it affect my filing?
A credit reduction state increases FUTA liability when federal loans remain unpaid, raising maximum penalty exposure. Employers in such states must file Schedule A, which affects available credits, the total amount owed, and payroll tax reporting for corporations subject to unemployment rules.
How do I amend a 2016 Form 940 I already filed?
To amend Form 940 for 2016, submit the corrected filing form, check the amended box, and explain changes affecting payroll tax or withholding. Financial institution records and the locked padlock icon in IRS systems help verify corrections affecting jobs, labor reporting, and Medicare-related payroll entries.
What happens if I cannot pay the full FUTA tax balance for 2016?
If unable to pay the total amount, file immediately to avoid the maximum penalty per partial month. The IRS may offer payment arrangements, but corporations remain subject to interest, fees, and enforcement actions until payroll tax, withholding, and unemployment obligations are fully resolved.
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