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IRS Form 940 (2023): Employer’s Annual FUTA Return
File your 2023 FUTA return accurately—download the official Form 940, review eligibility requirements, and follow step-by-step instructions to report unemployment taxes, claim state credits, and avoid costly penalties.
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What Is This Form
IRS Form 940 (2023) is used by employers to report and pay federal unemployment taxes under the Federal Unemployment Tax Act. It applies to businesses that meet IRS wage or employment thresholds and must reconcile federal FUTA obligations with state unemployment insurance programs.
Late Filers
Employers missing the January 31, 2024, deadline may still file Form 940, though penalties and interest have accrued since the original due date.
Multiple Income Sources
Employers with multi-state payroll or varied wage structures must report FUTA wages accurately, applying the $7,000 wage base consistently per employee.
Itemizing Deductions
Employers may claim up to a 5.4 percent FUTA credit for timely payments of state unemployment taxes, provided they maintain accurate records.
Claiming 2023 Credits
For 2023, eligible employers may apply the full 5.4 percent credit, but in credit-reduction states like California and New York, additional payments are required.
IRS Compliance
Form 940 ensures employers meet FUTA reporting requirements, and responding to IRS notices promptly helps prevent penalties and collection enforcement actions.
Citizens Abroad / Military
Under IRS guidelines, employers determine FUTA rules for employees abroad or in U.S. territories based on their location and where services are performed.
Eligibility
Form 940 is required for employers who paid $1,500 or more in any calendar quarter in 2022 or 2023, or had employees for 20 or more weeks. Filing depends on FUTA thresholds, not compliance history or preferences.
Late Filers
Employers who miss the January 31, 2024, deadline must still file Form 940, as failure to file results in monthly penalties until resolved.
Multiple Income Sources
Employers with multi-state payroll, varying schedules, or mixed wages must consolidate all earnings and apply the $7,000 FUTA wage base consistently.
Itemizing Deductions
Employers who pay state unemployment taxes on time may claim FUTA credits, reducing their net tax and requiring accurate documentation to support federal reporting.
Claiming 2023 Credits
Employers qualify for the 5.4 percent FUTA credit if they paid state taxes on time and no state credit reduction applies.
IRS Compliance
Businesses receiving IRS notices for 2023 FUTA issues must file promptly, as continued non-compliance may trigger liens and collection enforcement actions.
Citizens Abroad / Military
Employers paying wages abroad or in U.S. territories must verify FUTA rules for American employers and services performed outside the U.S.
Step-by-Step
Follow the steps below to complete your 2023 FUTA return accurately. Some steps reflect 2023 Form 940 rules and should be carefully reviewed before filing.
1. Gather Your Documents Before Starting
Collect all payroll records, wage summaries, and state unemployment tax payment confirmations for every employee on your 2023 payroll. You will also need your Employer Identification Number, prior-year filings, and any IRS notices received during or after the tax year.
2. Choose the Correct Filing Status
Confirm whether you are filing an original return, an amended return, or a final return. If you are correcting a previously submitted Form 940, check the amended return box and attach a clear explanation of the changes being made to wages, credits, or tax amounts reported on the original filing.
3. Report All Income on the Correct Lines
Enter total payments made to all employees on Line 3. Report payments exempt from FUTA tax on Line 4 and payments that exceed the $7,000 per-employee annual wage base on Line 5. Line 7 reflects your total taxable FUTA wages after all exclusions have been applied for the 2023 tax year.
4. Calculate Your FUTA Tax
Apply the 6.0 percent rate for FUTA tax to total taxable FUTA wages from Line 7 to determine gross FUTA tax liability. Then subtract the allowable state unemployment tax credit—up to 5.4 percent—to calculate the net FUTA tax due for 2023 before final adjustments.
5. Choose Your Deductions and Apply Exemptions
Review whether Line 10 applies to your return. Line 10 is used when certain FUTA-taxable wages were excluded from state unemployment tax. Employers in credit reduction jurisdictions—California, New York, and the U.S. Virgin Islands—must complete Schedule A and report adjustments on Line 11 to ensure accurate FUTA tax calculation and compliance.
6. Claim the 2023-Specific Credit (2023 Only)
If your business operated in a credit reduction state in 2023, file Schedule A to show extra FUTA tax. California, New York, and the USVI reduced credits, increasing FUTA liability above the net rate.
Filing Deadline — January 31, 2024
The original due date for Form 940 (2023) was January 31, 2024. Employers meeting the FUTA deposit requirement received an automatic extension to February 12, 2024. Late filings after these dates are subject to failure-to-file penalties and ongoing interest on unpaid FUTA balances from the original due date.
Refund Deadline — Likely Expired
Employers may claim a refund or credit for overpaid FUTA tax due within three years of filing or two years of payment, whichever is later. For most 2023 filers, this deadline is narrowing. Prompt review is essential, especially where overpayment or miscalculation is suspected.
Processing Time — Allow Several Months
Paper Form 940 processing times vary depending on IRS workload and can take several months. Employers with balances due should pay promptly using approved electronic methods, as interest and penalties continue to accrue regardless of processing delays or confirmation status from the IRS.
Electronic Filing and Payment
Form 940 may be filed electronically through the IRS e-file system, and all FUTA deposits must be made via electronic funds transfer. Failure-to-deposit penalties range from 2 percent to 15 percent, depending on the lateness and the severity of noncompliance, increasing with longer delays.
Missing W-2s or Tax Records for 2023?
Late filers often discover that original payroll records or wage documents are no longer readily accessible. The IRS maintains business tax transcripts, and other sources exist that can help reconstruct the information needed to file an accurate Form 940.
IRS Wage & Income Transcript
An IRS Wage & Income Transcript shows W-2s and 1099s filed with the IRS. Employers should use business transcripts for FUTA filing and account history verification.
IRS Account Transcript
An IRS Account Transcript shows filings, payments, penalties, and credits posted to a business account, helping employers verify prior FUTA reporting before filing late or amended returns.
Social Security Administration
SSA wage records reflect employer-reported earnings from W-2 filings and help verify employee wages when payroll records are missing, incomplete, or no longer available for verification purposes.
Contact Prior Employers
The IRS requires employers to keep employment tax records for at least four years; prior payroll providers or accountants may still retain supporting documentation or archived payroll records.
Filing late is always better than not filing, since the failure-to-file penalty is about 10 times higher than the failure-to-pay penalty.
Missing W-2s or Tax Records?
You can still complete your return even without original records
Penalties and interest on unpaid 2023 FUTA taxes have been accruing since the January 31, 2024, due date. Filing your return now stops the failure-to-file penalty from increasing further and limits the total amount owed to the IRS.
Failure-to-File Penalty
(5% per month, up to 25%)
The IRS charges 5% of the unpaid tax per month, or a partial month, if a return is unfiled, up to 25%. It stops once filed, but is separate from prior failure-to-pay penalties on the same balance.
Failure-to-Pay Penalty
(0.5% per month + interest)
The failure-to-pay penalty is generally 0.5% per month on unpaid tax, though it may vary under approved payment plans or after IRS enforcement notices. Interest also accrues separately and continues until the full balance is paid in full.
Penalty Abatement Options
(First-Time Abatement & Reasonable Cause)
Employers with a clean compliance history may qualify for first-time abatement, removing certain penalties for one tax year. Reasonable cause relief is available when failure to file or pay resulted from circumstances beyond the employer’s control, with IRS review required.
Filing late is always better than not filing at all. Failure-to-file is 4.5% monthly, failure-to-pay is 0.5%, so submitting the return is the most important step.
These are the most frequent errors that cause IRS processing delays, rejected returns, or missed credits on Form 940 filings.
- Using the wrong tax year form — Filing a non-2023 Form 940 can cause processing delays, rejected returns, or incorrect FUTA liability calculations by the Internal Revenue Service.
- Missing Schedule M / 2023-specific credit — Employers in multi-state or credit reduction jurisdictions must attach Schedule A; omission results in incomplete FUTA reporting and underpayment errors.
- Wrong filing status label — Incorrect Employer Identification Number or business name mismatches IRS records, delaying processing, misapplying payments, and triggering unnecessary account adjustments or notices.
- Applying Pease limitations incorrectly — Employers must apply the correct 2023 credit reduction rules for California, New York, and the U.S. Virgin Islands to avoid underreported FUTA tax liability.
- Treating unemployment compensation as partially tax-free — Only the first $7,000 of wages is taxable; misreporting wage limits or exclusions can distort FUTA calculations and create IRS adjustments.
- Assuming a refund is still available — Refund claims for 2023 FUTA generally expire after three years from filing or two years from payment, whichever is later.
- Missing or incorrect Social Security numbers — While Form 940 excludes Social Security numbers, mismatches in related W-2 filings can trigger IRS compliance issues and wage reporting discrepancies.
- Unsigned return — An IRS Form 940 without an authorized signature is invalid and will not be processed until properly signed and resubmitted.
- Missing attachments — Required Schedule A must accompany multi-state or credit reduction filings; omission results in incomplete returns and potential IRS balance-due notices.
What is IRS Form 940 (2023) used for?
IRS Form 940 (2023) is used by employers to report and pay federal income tax FUTA obligations under federal income tax rules for employee compensation. It ensures compliance with labor laws, state and local laws, and multi-state compliance requirements for the taxable year.
Can I still file a 2023 Form 940?
Yes, employers can still file Form 940 for the current year even after the deadlines. Filing helps maintain HR compliance, supports multi-state employment tracking, and aligns with federal requirements, especially for remote employees, direct deposit payroll, and overtime pay reporting.
Who is required to file Form 940?
If employers operate as multi-state employers or provide employee compensation that spans state lines, they must file Form 940 if they meet federal requirements. This encompasses wages for new employees, unpaid leave periods, and businesses that are subject to labor laws and withholding regulations.
What are the credit reduction states for 2023?
Credit-reduction states are jurisdictions that impose a higher FUTA liability due to federal borrowing. Employers with remote employees or workers residing in other states must meticulously evaluate compliance obligations across multiple states, the impact of state income taxes, and HR compliance regulations.
What happens if I cannot pay the full FUTA balance owed?
Employers unable to pay should review federal requirements and contact the department handling tax accounts. Interest may impose additional costs. Managing unpaid leave payroll, benefits, and employee compensation properly helps reduce penalties and maintain compliance across jurisdictions and state tax return rules.
How long should I keep copies of my filed Form 940?
Under federal income tax and labor laws, employers are required to maintain records for the taxable year. This encompasses employee handbook data, leave policies, and withholding records. During audits or compliance reviews, the IRS or state agencies may request documents.
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