IRS Form 940 (2020): Employer’s Annual FUTA Return

What IRS Form 940 (2020) Is For

The purpose of IRS Form 940 (2020) is to report federal unemployment taxes owed under the Federal Unemployment Tax Act. This tax is paid solely by employers and is not withheld from employees’ wages. It helps fund state unemployment insurance programs and ensures eligible workers receive temporary benefits if they become unemployed.

Form 940 also reconciles the total federal unemployment tax owed with the amount already paid during the year. It determines whether an employer owes additional tax or qualifies for a refund.

For a detailed breakdown of filing requirements, eligibility rules, and step-by-step instructions for IRS Form 940 (2020): Employer’s Annual FUTA Return, see our comprehensive guide.

When You’d Use Form 940 (2020)

Employers use Form 940 to report their annual federal unemployment tax for wages paid in the preceding calendar year. The original due date for this return was February 1, 2021. Employers should file the form now if they missed the original deadline, received an IRS notice requesting a missing return, or need to correct a previously filed form.

An amended Form 940 should be filed if there were wage reporting errors or if additional state unemployment taxes were paid after the original due date that affect credit calculations.

Key Rules or Details for 2020

For 2020, the FUTA tax rate was six percent on the first $7,000 of each employee’s wages. Employers who paid their state unemployment taxes on time could receive a credit of up to 5.4 percent, lowering the effective FUTA rate to 0.6 percent.

The U.S. Virgin Islands was the only state with a credit reduction for 2020, which meant that employers with employees there received a reduced credit and had a slightly higher FUTA tax rate. The 2020 version of Form 940 also reflected changes from the Tax Cuts and Jobs Act that made certain reimbursements, such as moving expenses and bicycle commuting benefits, subject to FUTA tax.

Step-by-Step (High Level)

Employers should follow these steps when filing Form 940 for 2020:

• Gather wage and tax payment records, including prior Form 940 filings, IRS notices, and state unemployment tax receipts.
  
  
• Use the 2020 version of Form 940 and check the amended return box if corrections are being made.
  
  
• Attach Schedule A (Form 940) if wages were paid in more than one state or if the business was subject to credit reduction.
  
  
• Include a written explanation of any amendments or corrections.
  
  
• Mail the completed form to the appropriate IRS address. Late or amended returns should be sent to the address listed for “without payment,” even if a payment is included.
  
  
• Keep copies of all filed forms and supporting documentation for at least four years after the tax is paid or becomes due.

Following these steps helps ensure accurate filing and compliance with federal and state unemployment tax requirements.

For complete details on wage reporting, withholdings, and unemployment tax filings, see our guide to Payroll & Employment Tax Forms.

Common Mistakes and How to Avoid Them

Employers can reduce errors and penalties by avoiding the following common mistakes:

• Using the wrong year’s form:  Always make sure you’re filing or amending the correct tax year version of Form 940. Using an outdated form can result in processing delays or rejection.
• Miscalculating FUTA wages: Carefully verify total wages and ensure all FUTA-taxable compensation is included. Omitting taxable payments or including exempt ones can trigger IRS notices.
• Incorrectly claiming state tax credits:  Double-check your eligibility for state unemployment tax credits and ensure all state payments have been made on time. Inaccurate or late state filings can reduce your FUTA credit.
• Forgetting Schedule A:  Employers with workers in multiple states must attach Schedule A (Form 940). Missing this attachment can delay processing.
• Sending the form to the wrong address:  The correct IRS mailing address depends on your business location and whether a payment is enclosed. Refer to the instructions for Form 940 before mailing.
• Omitting signatures or dates:  Unsigned or undated forms are considered incomplete and will not be processed. Always review each page before submission to confirm that all required signatures and dates are present.

Carefully reviewing each section of the form before submission helps prevent delays and penalties.

What Happens After You File

The IRS typically processes Form 940 within six to eight weeks. Amended returns may take longer. If additional information is needed, the IRS will send a notice requesting clarification or supporting documentation.

Employers who owe additional tax may pay by check or through the Electronic Federal Tax Payment System (EFTPS). Those unable to pay the full amount may request an installment agreement if the balance due is $25,000 or less and can be paid within twenty-four months. Penalties and interest continue to accrue until the full balance is paid in full.

If the IRS makes an adjustment that the employer disagrees with, the employer may file an appeal or request penalty abatement using Form 843 if there is reasonable cause.

Frequently Asked Questions

What is IRS Form 940 for 2020 used for?

IRS Form 940 for 2020 reports an employer's annual federal unemployment (FUTA) tax. Under the Federal Unemployment Tax Act, employers pay this tax to fund unemployment benefits for workers who lose their jobs.

Who must file an Employer’s Annual Federal Unemployment Tax Return?

Employers who paid cash wages of $1,500 or more in any calendar quarter, or who had one or more employees during 20 weeks, must file Form 940 to report federal unemployment FUTA tax.

How does state unemployment tax affect the FUTA tax rate?

Employers who pay their state unemployment taxes on time may be eligible for a maximum credit against their federal unemployment FUTA tax. States with credit reduction increase the effective FUTA tax rate for employers operating in those areas.

Are household or domestic employees subject to FUTA tax?

Employers paying cash wages to household employees or domestic services in a private home may owe FUTA tax if total wages paid exceed $1,000 in any calendar quarter within the calendar year.

Do agricultural employers need to file Form 940?

Agricultural employers must file if they pay $20,000 or more in cash wages to farm workers in any calendar quarter or employ ten or more workers during 20 or more different weeks within the same calendar year.

What is the purpose of Schedule A with Form 940?

Employers attach Schedule A if wages were paid in multiple states or if a credit reduction applies. This schedule helps the IRS determine the correct FUTA tax paid and the applicable state experience rate.

Where can I get additional information about FUTA tax filing?

Employers can visit the Internal Revenue Service website for the latest information, IRS forms, and instructions related to the Federal Unemployment Tax Act. The IRS provides guidance on payments, credit reductions, and filing requirements.

For more resources on filing or understanding prior-year IRS forms, visit our Form Summaries and Guides Library.