What IRS Form 940 (2018) Is For

Employers use IRS Form 940 (2018) to report all their FUTA taxes for the year. The federal unemployment tax applies to wages paid to employees, and only employers pay FUTA tax—it is not withheld from employees’ salaries. The federal government uses these funds to support state unemployment insurance systems, which provide temporary unemployment benefits to workers.

Employers must file this form if they:

• Paid wages of $1,500 or more in any calendar quarter during 2017 or 2018
  
  
• Had one or more employees for at least some part of a day in 20 or more weeks during 2017 or 2018
  
  
• Employed household employees or agricultural employees who meet FUTA thresholds

The Internal Revenue Service requires this tax return from most employers that have paid wages to employees during the calendar year. The filing form ensures that all FUTA tax liability is correctly calculated and paid to the IRS.

When You’d Use Form 940 for 2018

Employers use IRS Form 940 (2018) when they need to file a late or amended return. Late filings occur when a business misses the original due date of January 31, 2019 (or February 11, 2019, if all FUTA deposits were made on time). Amended filings are necessary when errors are found in wages paid, state unemployment tax credits, or credit reduction adjustments.

Typical situations requiring a late or amended return include:

• An employer receives an Internal Revenue Service notice for an unfiled or incomplete return.
  
  
• A business identifies miscalculations in FUTA taxable wages or underpaid state unemployment taxes.
  
  
• The company identifies errors in the FUTA tax credit due to late state payments.
  
  
• A change in ownership creates a successor employer situation requiring corrected reporting.
  
  
• A business stopped paying wages during the tax year but did not mark the return as final.

Even if the deadline has passed, filing Form 940 voluntarily helps employers reduce penalties and demonstrate good-faith compliance with IRS requirements.

Key Rules or Details for 2018

For the 2018 tax year, the FUTA tax rate was 6.0 percent on the first $7,000 of wages paid to each employee per year. Most employers received a 5.4 percent credit for state unemployment taxes paid on time, lowering their federal unemployment tax rate to 0.6 percent. The U.S. Virgin Islands was the only state that year with a credit reduction, so employers with wages subject to its unemployment tax paid a higher effective rate. Moving expenses and bicycle commuting reimbursements became subject to FUTA tax under the Tax Cuts and Jobs Act. Employers were also required to keep payroll, payment, and credit records for at least four years.

Step-by-Step (High Level)

Filing IRS Form 940 (2018) requires several key steps to ensure all FUTA taxes are accurately reported and paid.

• The employer gathers payroll records showing wages paid to each employee during the 2018 calendar year.
  
  
• The employer calculates FUTA taxable wages up to the $7,000 wage base per employee and applies any FUTA tax credits for timely state unemployment tax payments.
  
  
• The employer completes Schedule A (Form 940) if wages were paid in more than one state or in a state with a credit reduction.
  
  
• The employer files the completed form with the Internal Revenue Service by mail or electronically and retains all records for at least four years.

Common Mistakes and How to Avoid Them

Employers often make preventable errors when filing IRS Form 940 (2018). These mistakes can slow down processing or increase their FUTA tax liability. Below are some frequent issues and how to avoid them:

• Reporting total wages instead of taxable wages: Limit FUTA taxable wages to the first $7,000 per employee per year to prevent overreporting and excess tax payments.
  
  
• Claiming the full FUTA credit when ineligible: Pay all state unemployment taxes on time to qualify for the full 5.4% credit and avoid credit adjustments.
  
  
• Omitting Schedule A (Form 940): Include Schedule A if you pay wages in multiple states or a credit reduction state to ensure a complete and accurate filing.
  
  
• Failing to check the “final return” box: Mark the “final return” box if you’ve stopped paying wages to prevent the IRS from expecting additional returns.
  
  
• Reporting exempt employee wages: Review FUTA exemption rules and exclude wages paid to nonprofit, agricultural, or household workers who are not covered by FUTA tax.

Reviewing payroll data and verifying credit calculations before filing helps prevent these mistakes and ensures the employer remains compliant with federal unemployment tax requirements.

What Happens After You File

Once the IRS receives IRS Form 940 (2018), it generally processes paper returns within six to eight weeks and electronic filings within two to three weeks. Late or amended returns may take longer to process due to additional verification.

After processing, the Internal Revenue Service will issue one of the following:

• A refund if the employer overpaid FUTA tax
  
  
• A balance due notice showing remaining tax liability, penalties, and interest
  
  
• A request for documentation, such as payroll or state unemployment tax records

If additional tax is owed, employers must pay through the Electronic Federal Tax Payment System or request an installment plan using Form 9465. The IRS advises employers to respond promptly to notices and to maintain compliance with all federal unemployment tax obligations.

FAQs

What is the due date for IRS Form 940 (2018)?

The due date was either January 31, 2019, or February 11, 2019, depending on whether all FUTA deposits were made on time.

Can employers still file Form 940 for the 2018 tax year?

Yes, employers can file a late or amended return to resolve unfiled or incorrect FUTA tax reports.

What was the FUTA tax rate in 2018?

The FUTA tax rate was 6.0 percent, with a maximum credit of 5.4 percent for timely state unemployment taxes.

Which jurisdiction was a credit reduction state in 2018?

The U.S. Virgin Islands was the only state that year to receive a credit reduction.

Who must pay FUTA tax?

Only employers pay FUTA tax. Employees’ wages are not reduced by FUTA withholding.

What records should be kept after filing?

Employers must retain all payroll records, unemployment insurance payments, and proof of FUTA tax payments for a minimum of four years.

Do nonprofits have to file?

Specific nonprofit organizations are exempt, but most employers that pay taxable wages are required to file the annual federal unemployment tax return.