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IRS Form 940 (2021): Employer's Annual FUTA Return
Filing your 2021 federal unemployment tax return late? Download the official IRS Form 940 for 2021, review your FUTA liability, correct prior submissions, and stay compliant with federal unemployment tax requirements.
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What Is This Form
IRS Form 940 (2021) is used by employers to report and pay their annual Federal Unemployment Tax Act (FUTA) obligations for wages paid during the calendar year. This form applies to employers who meet specific FUTA filing thresholds and are responsible for contributing to the federal unemployment system.
Late Filers
Employers missing the January 31, 2022, deadline may still file the 2021 Form 940 to report FUTA tax, resolve compliance issues, and address IRS balances.
Multiple Income Sources
Employers must include overtime, bonuses, and commissions in FUTA taxable wages, ensuring that all compensation is counted toward the $7,000 per-employee wage base.
Itemizing Deductions
Employers may reduce FUTA liability by claiming a 5.4% credit for timely state unemployment tax payments, thereby lowering the effective federal tax rate.
Claiming 2021 Credits
Employers who pay state unemployment taxes on time in 2021 receive the standard FUTA credit, except in credit-reduction areas like the U.S. Virgin Islands.
IRS Compliance
Form 940 reports annual FUTA tax, documenting taxable wages, credits, and total tax owed or paid for accurate IRS compliance in 2021.
Citizens Abroad / Military
Employers with international or territorial employees must carefully review FUTA rules because they may treat wages earned outside the United States differently.
Eligibility
IRS Form 940 (2021) applies to employers who meet the specific FUTA filing threshold for wages paid during 2021, including late filers and those seeking to establish a compliance record after a missed deadline.
Late Filers
Employers missing the January 31, 2022, or February 10, 2022, deadlines must still file the Form 940 to report FUTA tax and resolve IRS liabilities.
Multiple Income Sources
Employers must include wages, overtime, bonuses, and commissions when calculating 2021 FUTA liability, ensuring that all compensation counts toward the $7,000 per-employee wage base.
Itemizing Deductions
Employers who pay state unemployment taxes on time may claim a 5.4% FUTA credit, reducing the effective federal rate on eligible 2021 wages.
Claiming 2021 Credits
Employers outside credit-reduction states qualify for full FUTA credit in 2021, while U.S. Virgin Islands employers faced a 3.3% reduction rate.
IRS Compliance
Employers meeting FUTA wage thresholds in 2021 must file Form 940, including final returns for businesses that ceased operations during the year.
Citizens Abroad / Military
Employers must verify whether wages paid to employees abroad or in U.S. territories are FUTA-taxable, as incorrect exclusions may cause underreported liability.
Step-by-Step
Complete your 2021 FUTA return correctly with these steps. Please apply the 2021 tax year rules and form details carefully to avoid errors.
1. Gather Your Documents Before Starting
Collect all payroll records, wage summaries, and documentation of state unemployment taxes paid during 2021. You will need proof of wages paid, FUTA deposits made, and any Schedule A data for multi-state filings before you begin.
2. Choose the Correct Filing Status
Review the type of return section on the 2021 Form 940 and check the appropriate box. Options include "amended," "successor employer," "no payments to employees in 2021," and "final" if the business closed or stopped paying wages. Selecting the wrong box can cause processing delays or require a corrected submission.
3. Report All Income on the Correct Lines
Enter total payments made to all employees during 2021, then subtract exempt payments to determine FUTA-taxable wages. Taxable wages include salaries, overtime, bonuses, and commissions, all reported up to the $7,000-per-employee federal wage base on the applicable lines of the form, ensuring accurate unemployment FUTA tax calculations and proper IRS compliance reporting.
4. Calculate Adjusted Gross Income (AGI)
Apply the 6.0% FUTA tax rate to all taxable wages, then subtract the credit for timely state unemployment taxes—up to 5.4%—to determine the net FUTA tax owed. This calculation also accounts for any deposits already made during the year.
5. Choose Your Deductions and Apply Exemptions
Subtract any 2021 FUTA tax deposit from the calculated liability to ascertain the balance due or overpayment. Employers must reduce the amount of credit available to them and report any additional taxes owed in credit-reduction states to ensure accurate unemployment tax reporting. FUTA is necessary to fulfill legal obligations. A federal unemployment tax compliance and tax return reporting.
6. Claim the 2021-Specific Credit (2021 Only)
Employers eligible for the full 5.4% state unemployment tax credit should confirm their state was not subject to a credit reduction for 2021. The U.S. Virgin Islands had a 3.3% reduction rate requiring a Schedule A attachment.
Filing Deadline — January 31, 2022
The original due date for IRS Form 940 for tax year 2021 was January 31, 2022. Employers making timely FUTA deposits received an extension until February 10, 2022. Late returns may trigger failure-to-file and failure-to-pay penalties, while interest accrues continuously on unpaid balances from the original deadline.
Refund Deadline — Likely Expired
IRS refund claims generally must be filed within 3 years of the filing date or 2 years after the tax payment, whichever is later. For timely 2021 Form 940 filings, the refund window likely expired in early 2025. Limited exceptions may apply for disasters, combat service, or written assessment extensions.
Processing Time — Allow Several Months
Paper-filed prior-year Form 940 returns may require several months for IRS processing due to existing backlogs and manual review procedures. Employers owing FUTA tax should submit payment immediately rather than wait for confirmation, as penalties and interest continue to accumulate on unpaid balances until full payment is received.
Amended Return Requirements
Employers correcting a previously filed 2021 Form 940 must check the amended return box, complete corrected amounts, sign the return, and attach a written explanation describing all changes. Schedule A should only be included when otherwise required for FUTA credit reduction reporting or multi-state wage reporting.
Missing W-2s or Tax Records for 2021?
Late filers preparing a 2021 return may no longer have easy access to original payroll documents or wage statements. IRS business transcripts and other records can help reconstruct the information needed to complete and file your return accurately.
IRS Wage & Income Transcript
This IRS transcript contains third-party-reported income data, including Forms W-2 and 1099, to help verify wage information reported to the IRS for tax year 2021.
IRS Account Transcript
A tax account transcript for businesses shows payments, assessments, penalties, interest charges, and account changes related to a specific tax year, including 2021 tax filings.
Social Security Administration
The SSA receives employer-filed Forms W-2 and W-3 and may provide copies to assist verification of employee wage information when original payroll records are unavailable.
Contact Prior Employers
Internal Revenue Service rules require employers to retain employment tax records for at least 4 years, meaning businesses that paid wages in 2021 may still maintain documentation.
Filing late is better than not filing because failure-to-file penalties accrue faster than failure-to-pay penalties, making immediate submission the most important step.
Missing W-2s or Tax Records?
You can still complete your return even without original records
Penalties and interest on the unpaid 2021 FUTA tax have accrued since the original deadline. Filing now stops failure-to-file penalties from increasing, but unpaid tax, failure-to-pay penalties, and interest continue until the balance is fully resolved.
Failure-to-File Penalty
(5% per month, up to 25%)
Late returns incur a 5% penalty of the unpaid FUTA tax per month or partial month, up to 25%. Once the return is filed, this penalty stops increasing, but older unfiled returns may have reached the cap.
Failure-to-Pay Penalty
(0.5% per month + interest)
Failure to pay penalties include 0.5% of the unpaid balance per month and FUTA tax interest. When both penalties apply, the failure-to-file portion is reduced by the failure-to-pay charge, creating a combined ongoing cost until the balance is paid.
Penalty Abatement Options
(First-Time Abatement & Reasonable Cause)
Fair point to flag it—let’s fix it cleanly.
Employers with a clean compliance history may qualify for first-time abatement, which removes penalties for late filing or payment. Reasonable cause relief may apply when circumstances beyond control prevented timely FUTA compliance.
Filing late is better than not filing because failure-to-file penalties accrue at a higher monthly rate than failure-to-pay penalties, making filing the most important step an employer can take.
These are among the most frequent causes of IRS delays, rejected returns, or missed credits on 2021 filings.
- Using the wrong tax year form — Submitting a Form 940 from any year other than 2021 when reporting or amending FUTA liability can cause IRS processing delays and errors.
- Missing Schedule M / 2021-specific credit reduction adjustment — Multi-state employers must attach the Schedule A to correctly report the 3.3% credit reduction and avoid FUTA underpayment issues.
- Wrong filing status label — Failing to select the correct type of return box, such as amended, successor, final, or no payments, can misroute IRS processing.
- Applying Pease limitations incorrectly — Employers must correctly apply the 3.3% credit reduction instead of assuming full FUTA credit, preventing inaccurate tax liability calculations.
- Treating unemployment compensation as partially tax-free — All FUTA-taxable wages, including overtime, bonuses, and commissions, must be reported up to the $7,000 wage base to prevent discrepancies.
- Assuming a refund is still available — The refund window for overpaid 2021 FUTA tax has likely closed, and eligibility should be verified with a tax professional first.
- Missing or incorrect Social Security numbers — Incorrect EIN or SSN entries can cause IRS mismatches, misapplied payments, and additional correspondence or processing delays for Form 940 filings.
- Unsigned return — A Form 940 without an authorized signature is considered invalid and will not be processed by the IRS until corrected.
- Missing attachments — Failing to include Schedule A or required written explanations for amended returns can delay processing or result in the IRS rejecting the filing.
What is IRS Form 940 (2021) used for?
IRS Form 940 (2021) is used by employers to report and pay FUTA tax on employee compensation to the federal government to fund unemployment benefits. It ensures compliance with payroll tax, labor, and state and local laws affecting workers across multiple states.
Can I still file a 2021 tax return?
Yes, employers can still file Form 940 for 2021 to pay FUTA tax and remain compliant with federal income tax and payroll tax rules. Filing helps resolve penalties, supports HR compliance, and ensures proper reporting of overtime pay and employee compensation.
What is a credit reduction state, and did it apply in 2021?
A credit reduction state lowers available credits when unemployment loans remain unpaid. In 2021, employers in affected areas faced a higher total FUTA tax. This impacts multi-state compliance, especially where employees live in other states or remote worker arrangements are in place.
Do I need to file Schedule A with my 2021 Form 940?
Yes, Schedule A is required for multi-state compliance and credit reduction reporting. Employers must file accurately using their Employer Identification Number to ensure available credits are accurate, especially when employees work remotely or across multiple states, in accordance with HR compliance rules.
What happens if I cannot pay my full FUTA balance?
Employers should still file to remain compliant, even if they are unable to pay the full amount. The IRS may assess penalties, but filing helps save time, manage quarterly payment obligations, and address unpaid leave or cash flow issues next quarter.
How long should I keep records related to my 2021 Form 940 filing?
Employers must retain records such as employee compensation, payroll tax data, and employee handbook policies for at least four years. This supports audits, multi-state employment verification, and remote employees, and ensures compliance with federal income tax and state and local laws.
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