Filing the unfiled 2020 Form 940 is an essential responsibility for employers because it ensures compliance with the federal government’s requirements for the Federal Unemployment Tax Act. This annual tax return provides the basis for paying unemployment compensation benefits to workers who lose their jobs. When employers fail to file the tax form, they face exposure to the failure-to-file penalty, hefty penalties, and interest charges on unpaid tax balances. Timely handling of employment taxes supports compliance, particularly for small business owners managing cash flow and payroll taxes.

Form 940 applies to any business that paid wages in the 2020 tax year and met the filing threshold, whether involving one or more employees, household employees, or agricultural employees. It covers total payments made to workers, while accounting for payments exempt from FUTA tax, such as certain fringe benefits and group term life insurance. Employers who miss the filing deadline for the form or submit late payments often receive the first IRS notice quickly, creating added stress on top of existing financial obligations.

This guide aims to help employers understand their tax obligations, pay employment taxes correctly, and avoid unnecessary penalties. We will explain the requirements, including when to pay FUTA tax, how employer contributions are calculated, and what options exist if a late tax return has already caused issues.

Understanding Federal Unemployment Tax

The Federal Unemployment Tax Act, commonly called FUTA, establishes a framework that requires employers to pay FUTA tax on employee wages. This system provides the primary funding source for unemployment compensation programs managed at the state level. Employers are solely responsible for FUTA tax payments, meaning employees are not subject to withholding for this obligation. Employers who do not file the overdue 2020 Form 940 risk unnecessary complications, as the form records compliance with annual requirements. According to the IRS, employers use Form 940 to report FUTA obligations and confirm they have met federal requirements for employment taxes.

Purpose of FUTA Tax

The federal government relies on FUTA contributions from employers to ensure unemployment compensation programs remain stable during periods of economic disruption. Employers pay FUTA tax on the first $7,000 of employee wages each tax year, subject to adjustments for credit reduction states. These contributions strengthen the nationwide system that provides temporary financial support to workers separated from employment through no fault of their own.

Differences Between FUTA and Other Employment Taxes

FUTA differs from income taxes and payroll taxes, such as FICA. Income taxes are withheld from employee wages and reported quarterly, while FICA covers Social Security and Medicare obligations. In contrast, FUTA represents an employment tax funded only through employer payments, creating a separate obligation distinct from employee-driven taxes. Employers who fail to distinguish these categories risk errors that can trigger penalties and interest charges.

FUTA demonstrates how employer contributions support both individual workers and the broader economy. Clear awareness of the requirements helps businesses prepare for timely filing and accurate deposits. Maintaining compliance reduces the likelihood of late payment, unpaid tax, and significant penalties, supporting adherence to federal responsibilities.

Form 940 Overview for 2020

Form 940 is the official tax return for employers to report and reconcile their Federal Unemployment Tax Act obligations. For the 2020 tax year, the form was designed to calculate the FUTA tax on wages paid to employees, determine adjustments for credit reduction states, and confirm the accuracy of deposits already made. Employers who fail to submit this return on time expose themselves to the failure to file penalty, growing interest, and potentially hefty fines that can disrupt financial stability. 

According to the IRS, detailed 2020 rules appear in the Form 940 instructions explaining each return line.

• Employers with one or more employees during at least 20 weeks in 2019 or 2020, or who paid wages of $1,500 or more in any calendar quarter, must file.
  
  
• Employers of household employees may trigger a filing requirement when wages reach the threshold.
  
  
• Agricultural employees become subject when the total compensation exceeds $20,000 in a quarter or when 10 or more workers are employed in at least 20 weeks.
  
  
• While often excluded from other employment taxes, tax-exempt organizations may still need to file, depending on the wages paid.
  
  
• Corporate officers and successor employers also fall under the reporting rules when they meet wage or employment thresholds.

Form 940 includes multiple sections to confirm employer identification, state unemployment interactions, and calculations for total payments. Adjustments for payments exempt from FUTA, such as certain fringe benefits or group term life insurance, require precise attention to detail. Employers may also need to file Schedule A for multi-state operations or when operating in a credit reduction state.

A clear understanding of Form 940’s structure enables employers to prepare accurate filings and reduce the risk of IRS notices. Use the 2020 version to avoid relying on a previous year’s form, which can delay processing. The filing process is simplified when payroll records are complete and organized, ensuring timely submission and smoother compliance with employment tax responsibilities.

FUTA Tax Liability Explained

Understanding FUTA tax liability is crucial for employers who must calculate and pay this annual obligation accurately. The FUTA tax applies to wages paid during the tax year, and the liability is determined through a combination of gross employee wages, exemptions, and credits for state unemployment contributions. To ensure compliance, employers submitting the unfiled 2020 Form 940 must review taxable and non-taxable payments. Failure to report accurately can lead to hefty penalties, late payment interest, and an IRS notice requiring corrective action.

FUTA Tax Rate and Employer Contributions

• The standard FUTA tax rate for 2020 was six percent on the first $7,000 of employee wages paid during the tax year.
  
  
• Employers receive a maximum credit of up to 5.4 percent when state unemployment taxes are paid on time, lowering the federal tax rate to 0.6 percent.
  
  
• Payments exempt from FUTA include certain fringe benefits, group term life insurance, and employer contributions to retirement plans.
  
  
• Employers who miscalculate total payments or exclude taxable wages risk additional assessments from the IRS.

Credit Reduction States

• Employers operating in credit reduction states lose part of the FUTA credit for timely state unemployment tax payments.
  
  
• For 2020, the U.S. Virgin Islands was the only designated credit reduction state.
  
  
• Employers in these jurisdictions were required to calculate additional liability on Schedule A of Form 940.
  
  
• Credit reduction increases unpaid tax balances if employers fail to account for the added percentage.

Quarterly Payment and Calculation Process

• FUTA liability exceeding $500 in a calendar quarter triggers a required quarterly payment.
  
  
• Employers can deposit through a financial institution, credit or debit card, or the Electronic Federal Tax Payment System.
  
  
• Deposits must match the reported quarterly amounts to avoid the failure-to-deposit penalty.

Calculating FUTA liability with precision reduces risks of noncompliance, ensuring accurate employer payments and alignment with IRS requirements. Employers that maintain clear payroll records and monitor credit reduction updates strengthen their ability to avoid errors and meet filing form deadlines.

FICA Taxes vs. FUTA Taxes

Employers often encounter confusion when distinguishing between FICA and FUTA obligations, as both are employment taxes tied to wages paid during a tax year. Despite their similarities, these categories differ in purpose, funding, and responsibility. Misunderstanding the distinction can lead to reporting errors, incorrect tax payments, and exposure to unnecessary penalties. A straightforward comparison ensures employers meet their filing form obligations and avoid complications that may arise during payroll processing.

Key Distinctions Between FICA and FUTA

1. Purpose

• FICA taxes: Fund Social Security and Medicare programs.
• FUTA taxes: Fund federal unemployment compensation.

2. Who Pays

• FICA taxes: Shared between employees and employers.
• FUTA taxes: Paid entirely by employers.

3. Wage Base

• FICA taxes: Social Security portion has an annual cap; Medicare has no wage limit.
• FUTA taxes: Applies only to the first $7,000 of wages per employee.

4. Reporting

• FICA taxes: Reported quarterly on Form 941 and reflected annually on Form W-2.
• FUTA taxes: Reported annually on Form 940.

5. Exemptions

• FICA taxes: Certain fringe benefits and pre-tax deductions are excluded.
• FUTA taxes: Exempts payments like group term life insurance, retirement contributions, and other specified benefits.

Employers must understand that FICA represents payroll taxes withheld from employee wages and employer contributions, while FUTA relies solely on employer payments. Both categories require careful calculation but serve different social and economic functions.

Maintaining accurate separation between FICA and FUTA calculations ensures compliance and reduces the risk of late payment notices or failure to file penalties. Employers who keep payroll systems precise and well-documented can avoid disputes with the IRS, strengthen financial controls, and meet obligations consistently across tax forms.

Employer Identification Number (EIN) Requirements

Employers filing Form 940 for the 2020 tax year must provide an Employer Identification Number. The EIN acts as the federal government’s official way to track employer contributions, ensuring that payments and returns are linked correctly to each business entity. Submitting the unfiled 2020 Form 940 without a valid EIN delays processing and increases the risk of late payment penalties. According to the IRS, the 2020 Form 940 requires the EIN at the top of the return before reporting any wage details.

• Requirement: All employers submitting employment taxes, whether as small business entities, corporations, or tax-exempt organizations, must have an EIN.
• Application: Employers who have not yet obtained an EIN must apply online through the IRS system or submit Form SS-4, ensuring the number is active before filing.
• Use on the Return: The EIN must be placed on the trade name line and used consistently across every tax form filed during the year.
• Corrections: If an employer changes structure, such as becoming a successor employer, a new EIN may be required to avoid mismatches.
• Common Issues: Submitting a return with an incorrect EIN, transposed digits, or a mismatched trade name may cause rejection at a financial institution, delaying payment posting and increasing exposure to interest on unpaid tax.

Employers who treat EIN reporting as a routine compliance step reduce risks associated with tax return errors. Consistency, accuracy, and timely updates ensure smooth processing of Form 940 and strengthen the overall integrity of payroll tax reporting.

Due Dates and Filing Requirements

Employers preparing the unfiled 2020 Form 940 must understand the precise due dates and filing requirements that applied to the tax year. The form was originally due February 1, 2021, since January 31 fell on a weekend. Employers who deposited their FUTA liability on time could submit the return until February 10, 2021—filing after the February 1 or February 10 deadline without an approved extension exposed employers to the failure-to-file penalty, late payment interest, and additional assessments on unpaid tax balances. Accuracy in timing and proper classification of wages and employer contributions ensured smoother compliance.

Original Deadlines and Extensions

• Employers were expected to complete the tax return covering wages paid during the 2020 calendar year.
  
  
• Returns submitted with late payment require immediate attention once the IRS issues the first notice of balance due.
  
  
• Using a previous year’s form led to processing delays and additional correspondence with the IRS.
  
  
• Filing electronically offered faster acknowledgment, although mailing the return to the address listed in the instructions remained acceptable.

Special Filing Categories

• Successor employers acquiring a business during the tax year were required to file for wages paid by the predecessor if employment continued.
  
  
• Agricultural employees triggered Form 940 filing when compensation exceeded $20,000 in any quarter or when 10 or more workers were employed across 20 weeks.
  
  
• Household and domestic workers were required to report when wage thresholds were met.
  
  
• Independent contractors did not fall under FUTA tax, but misclassification often led to additional penalties.
  
  
• Local governments and specific tax-exempt organizations were subject to unique exemptions, which required reviewing the IRS instructions for accuracy.

A clear understanding of deadlines and filing categories significantly reduces compliance risks. Employers that treat reporting requirements seriously can avoid hefty penalties while demonstrating proper payroll tax management. Attention to detail ensures that future filings proceed smoothly, safeguarding employer finances and workforce protections.

Avoiding Penalties and Interest

Employers filing the unfiled 2020 Form 940 must know that the IRS imposes multiple penalties and interest charges when unmet tax obligations are incurred. Each penalty has specific conditions, rates, and maximum limits that can escalate overall liabilities. Understanding the structure of these assessments helps businesses manage compliance effectively and protect their finances.

• Failure to File Penalty: Employers who miss the deadline face five percent of the unpaid tax for each month or part of a month that the return remains outstanding. The maximum penalty reaches twenty-five percent of the unpaid balance.
  
  
• Failure to Pay Penalty: A penalty of 0.5 percent of the unpaid tax applies for each month the balance remains unpaid. This penalty continues to accrue until the liability is satisfied in full.
  
  
• Failure to Deposit Penalty: Employers who do not meet quarterly payment schedules may face penalties beginning at two percent for deposits made one to five days late. The rate rises to fifteen percent for deposits unpaid after repeated IRS notices.
  
  
• Interest on Unpaid Tax: Interest compounds daily on any unpaid tax balance, adding to the overall cost. The IRS updates interest rates quarterly, which creates uncertainty in forecasting total obligations.
  
  
• Misclassification of Workers: Employers who report employees as independent contractors without proper documentation may face additional assessments, back taxes, and potential audits.
  
  
• Ignoring IRS Notices: Disregarding the first IRS notice leads to escalated enforcement, including liens, levies, or seizures of assets until the liability is resolved.

Employers who stay current with deposits, report wages paid accurately, and respond promptly to correspondence reduce their exposure to financial penalties. Diligent attention to reporting requirements and payment schedules demonstrates compliance, ensures stability for payroll systems, and safeguards long-term business operations.

Calculating FUTA Deposits Accurately

Employers who file the unfiled 2020 Form 940 must accurately calculate FUTA deposits to remain compliant and avoid costly penalties. The process involves reviewing wages paid, applying the correct tax rate, excluding exempt payments, and following deposit thresholds. Each step is vital in confirming that employer contributions are complete and recorded correctly in IRS systems.

Step 1: Review Total Payments

Begin by identifying the total employee payments during the 2020 tax year. Payroll records should include all employee wages, tips, and other compensation.

Step 2: Subtract Exempt Payments

Remove amounts that qualify as payments exempt from FUTA tax, such as certain fringe benefits, retirement contributions, and group term life insurance. These exemptions reduce the taxable wage base.

Step 3: Apply the FUTA Rate

Multiply the taxable wages by the 6 percent FUTA rate. Employers who paid state unemployment taxes on time may qualify for a credit of up to 5.4 percent, reducing the effective federal tax rate to 0.6 percent.

Step 4: Determine Quarterly Deposit Obligations

A quarterly payment deposit is required if the calculated FUTA liability exceeds $500 in a calendar quarter. When the liability is $500 or less, the amount is carried over to the next quarter.

Step 5: Submit Deposits Correctly

Employers can submit deposits through a financial institution, with a credit or debit card, or through the Electronic Federal Tax Payment System. Deposits must reflect the exact liability reported quarterly to avoid the failure to deposit penalty.

Employers who carefully follow these steps ensure compliance, minimize exposure to unpaid tax assessments, and protect their businesses from unnecessary enforcement actions. Consistency in calculation and timely deposits strengthens payroll tax management and provides long-term stability for business operations.

E-Filing and IRS Online Resources

Electronic filing provides employers a secure and efficient method for submitting the unfiled 2020 Form 940. While many taxpayers still mail their tax returns, the IRS strongly encourages e-filing because it reduces processing errors, accelerates confirmation, and supports more accurate integration with payroll systems. Employers who adopt e-filing practices often experience greater consistency in managing employment taxes.

Key Actions for Employers

• Select an Authorized Provider: Employers must use IRS-approved e-file providers capable of handling prior-year forms. Authorized systems ensure that data on wages, total payments, and employer contributions meet federal standards.
  
  
• Retain Confirmation Records: Keep digital or printed acknowledgments from the IRS as part of employer payments documentation. These records confirm that the tax form was received and processed.
  
  
• Align With Payroll Data: Match the e-filed tax return with payroll records reported quarterly to maintain accuracy for employment taxes. Cross-checking prevents mismatches that can lead to IRS notices.
  
  
• Correct Through Amended Return: When an error occurs in a previously submitted return, employers can file an amended return electronically, reducing delays in adjusting unpaid tax liabilities.
  
  
• Maintain Security: Submissions through electronic channels must be protected with secure access to financial institution accounts, safeguarding employer information.

Employers who integrate e-filing into payroll operations gain efficiency and strengthen compliance with federal requirements. Electronic systems reduce the likelihood of late payment, protect against hefty penalties, and streamline coordination between state and federal government filings. Choosing reliable digital resources ensures businesses remain consistent in their reporting responsibilities while maintaining accurate employment tax records.

Preventing Future Filing Issues

Employers who faced difficulties with the unfiled 2020 Form 940 can take practical steps to avoid repeating the same challenges in future tax years. Preventive measures are essential for small business owners lacking extensive payroll departments. Accurate preparation, consistent scheduling, and careful recordkeeping form the foundation for meeting federal government requirements while limiting exposure to hefty penalties.

Strengthening Recordkeeping Practices

Maintaining organized payroll records ensures clarity when preparing the annual tax return. Employers should track wages paid, payments exempt from FUTA tax, and employer contributions throughout the year rather than waiting until deadlines approach. Proper documentation of group term life insurance, certain fringe benefits, and other compensation categories reduces errors in calculating taxable wages. Detailed records also protect businesses when responding to the first IRS notice or questions related to unpaid tax.

Establishing Reliable Filing Procedures

Employers benefit from implementing reliable procedures that remind them of due dates for both quarterly payment deposits and the annual filing form. Calendar alerts and payroll software systems help track employment taxes across each calendar quarter. Employers who stopped paying wages during the year should still file a final return, marking the appropriate box to notify the IRS. This practice prevents unnecessary correspondence while maintaining compliance with employment tax regulations.

Taking preventive measures demonstrates strong financial management and ensures long-term stability. Employers who focus on careful planning, consistent review of payroll taxes, and timely deposits reduce risks of late payment and IRS penalties. Establishing a proactive compliance framework protects business finances while maintaining the trust of employees and government agencies alike.

Frequently Asked Questions

What should I do if I still have an unfiled 2020 Form 940?

Employers with an unfiled 2020 Form 940 should complete and submit the return immediately to reduce additional penalties and interest. Filing Form 940 late does not eliminate the obligation, and interest continues to accrue until the IRS receives full payment. Employers must also review payroll records, calculate wages accurately, and confirm deposits already made. Taking prompt action helps businesses remain compliant while protecting workers' access to unemployment benefits.

Can I file Form 940 electronically for the 2020 tax year?

Employers may file Form 940 electronically for the 2020 tax year if their provider supports prior-year submissions. E-filing gives individual taxpayers and small businesses faster confirmation and fewer errors than paper returns. Employers should retain acknowledgment records for audit purposes. Submitting returns online also streamlines how employers pay taxes, ensuring federal government requirements and payroll systems remain consistent and reliable.

What are the consequences of late filing?

Late filing exposes employers to the failure to file penalty, interest on unpaid tax, and further enforcement actions. The IRS imposes penalties for each month the return remains unfiled, which can rise to a maximum of twenty-five percent of the liability. Employers who pay taxes late may also face additional assessments if deposits were missed. Addressing late filing quickly reduces future risks, protects payroll records, and ensures businesses meet federal compliance standards.

Do sole proprietors need to file Form 940?

A sole proprietor must file Form 940 if they paid wages that meet FUTA thresholds, regardless of business size. Even when income taxes are reported individually, FUTA remains an employer-only obligation. The filing requirement applies if wages exceed $1,500 in any calendar quarter or if one or more employees worked for 20 weeks during the year. Meeting this obligation protects employees' access to unemployment benefits and avoids unnecessary IRS penalties.

Can I request legal or tax advice regarding Form 940?

Employers may seek professional assistance, but the IRS does not provide legal or tax advice specific to individual circumstances. Independent professionals can review payroll records, assess exemptions, and provide tailored guidance. Employers should ensure that advisers correctly explain how to file Form 940 while clarifying obligations for individual taxpayers and small businesses. Consulting professionals reduces confusion about deposits, exemptions, and liabilities linked to late filing or unpaid tax balances.

How are FUTA taxes related to unemployment benefits?

FUTA taxes are employer-paid federal unemployment taxes. When employers file Form 940 and pay FUTA, the revenue flows into federal accounts that support state unemployment insurance programs. States draw from these funds to help cover benefit payments and, when needed, to obtain federal advances during shortfalls. Consistent FUTA compliance ensures employer contributions are recorded correctly, helps stabilize program financing, and supports the timely distribution of unemployment benefits to eligible workers.

What if I cannot pay the taxes owed with my filing?

Employers unable to pay taxes owed when filing Form 940 should still submit the return on time. Filing protects against higher penalties linked to failure to file. After submitting the tax return, employers can work with the IRS to establish a payment arrangement that fits their financial situation. Responding quickly after late filing shows good faith, avoids heavier enforcement measures, and allows businesses to remain aligned with federal tax obligations.