Filing Form 940 is one of the central responsibilities for employers across the United States. When the 2021 Employer’s Annual Federal Unemployment Tax Return remains unfiled, businesses face more than administrative inconvenience. The federal government uses the FUTA tax to provide unemployment compensation for workers who lose their jobs. Employers who have not submitted their tax returns expose themselves to penalties, accumulating interest, and enforcement actions that can compromise accounts and payroll resources.

The requirements for the 2021 filing period were specific. Employers were required to complete the filing form by the due date of January 31, 2022, unless they qualified for the February 10 extension. Any business that paid wages of $1,500 or more in a calendar quarter or had at least some part of a day of employment in twenty or more different weeks was obligated to file. Employers must also accurately record wages, including identifying FUTA-exempt payments such as group-term life insurance, fringe benefits, and costs to independent contractors.

This guide presents clear steps to address an unfiled 2021 Form 940. We explain responsibilities, reporting rules, and available options so you can determine compliance and protect your business from additional risks.

Filing Form 940: Basic Information and Employer Responsibilities

Employers complete Form 940 to report the federal unemployment tax connected to wages paid during the tax year. The Employer’s Annual Federal Unemployment Tax Return provides the Internal Revenue Service with the data needed to calculate FUTA tax obligations. Completing the filing form correctly requires employers to supply basic information, including the business name, trade name, employer identification number, and mailing address. Accurate details prevent processing delays and reduce the risk of IRS notices. The form also establishes employer responsibilities for reporting paid wages, identifying exemptions, and applying available credits linked to state unemployment contributions. For reference, the 2021 Form 940 (PDF) contains the official layout and line items employers must use.

• Every corporation, partnership, and sole proprietor that paid wages of $1,500 or more during a calendar quarter must file.
  
  
• Employers must include wages paid to all workers, full-time or part-time, when determining liability.
  
  
• Independent contractors are excluded, but accurate classification is critical for compliance.
  
  
• Employers separately report fringe benefits, group-term life insurance, and other FUTA-exempt payments to prevent overpayment.
  
  
• The form requests the total amount of taxable wages up to the $7,000 FUTA wage base for each employee.

The filing requirements ensure consistency in reporting and allow the IRS to determine employer compliance. Employers must maintain records documenting how figures were calculated, including payroll data and state unemployment contributions. 

Connecting FUTA With Broader Payroll Tax Duties

Filing Form 940 also reflects broader responsibilities associated with payroll taxes, linking FUTA obligations with Medicare and Social Security through accurate wage classification.

• Information about partial-month employment must be reported if workers were employed for at least some part of twenty different weeks.
  
  
• Employers must provide the business name and employer identification number registered with the IRS.
  
  
• A financial institution account is commonly used for EFTPS deposits, while checks or money orders remain available payment methods.
  
  
• Corporations with multiple trade names must ensure that each entity files appropriately.
  
  
• Accurate completion of basic information reduces errors and ensures correspondence from the IRS reaches the correct address.

Form 940 represents more than a routine filing requirement. It demonstrates an employer’s adherence to federal unemployment compensation regulations and payroll obligations. By treating the form as a core part of business tax responsibilities, employers establish compliance, reduce exposure to penalties, and ensure accurate funding of programs that support workers nationwide.

Understanding FUTA Tax, FICA Taxes, and Unemployment Compensation

To remain compliant, employers must clearly understand how federal employment taxes operate. The Federal Unemployment Tax Act, or FUTA, funds unemployment compensation programs administered through the federal government. Employers pay this tax separately from FICA taxes, which cover Social Security and Medicare. While FUTA and FICA relate to employee wages, their purposes differ, making it essential for employers to distinguish between the two obligations. Employers who understand the FUTA tax rate, exempt payments, and credit rules can better determine liabilities and protect their accounts from unnecessary penalties.

FUTA Tax Basics

• Employers pay FUTA taxes on the first $7,000 of wages paid to each employee during the year.
  
  
• The base FUTA tax rate applies nationally, though credits for state contributions often reduce the effective rate.
  
  
• FUTA tax applies only to employees’ wages and does not extend to independent contractors.
  
  
• Certain FUTA-exempt payments, including fringe benefits and group-term life insurance, are excluded.
  
  
• Employers must report available credits claimed for state unemployment taxes to avoid double taxation.

FICA Taxes Overview

• FICA taxes cover Social Security and Medicare, funded partly by employers and partly by employees.
  
  
• Employers must withhold the employee portion while contributing the matching employer share.
  
  
• Social Security has a separate wage base that adjusts annually, distinct from the FUTA wage base.

The interaction between FUTA and FICA underscores the layered nature of payroll tax responsibilities. FUTA supports workers after job loss, while FICA provides long-term retirement and healthcare benefits. Although the purposes differ, both systems depend on accurate reporting of employees’ wages, careful tracking of exemptions, and timely tax payments. Employers who manage these obligations effectively strengthen compliance, safeguard financial stability, and support federal programs designed to protect workers throughout different stages of employment and beyond.

IRS Form 940 Due Date and Late Filing Consequences

Meeting the due date for Form 940 establishes an employer’s compliance with federal unemployment tax rules. For the 2021 filing year, employers must submit their completed form no later than January 31, 2022. Employers who made all quarterly payment deposits on time received an extended deadline of February 10, 2022. These deadlines ensure the federal government gets the information needed to calculate unemployment compensation obligations accurately and that accounts remain in good standing.

Importance of Timely Filing

The IRS expects every employer with obligations under the Federal Unemployment Tax Act to submit the required information promptly. Filing after the due date subjects the employer to late penalties that can grow monthly until the maximum percentage is reached. Penalties also accrue on the total amount of unpaid FUTA tax. Timely submission ensures the correct application of available credits related to state unemployment contributions, reducing the overall FUTA liability reported on IRS Form 940.

Consequences of Missing the Deadline

Missing the deadline affects far more than paperwork compliance. The IRS assesses penalties for failure to file and pay, applying additional interest charges until the balance is satisfied. Employers who delay filing risk having their account flagged for collection actions, including liens or levies against a financial institution. A late return also disrupts the ability to demonstrate compliance when applying for relief programs or negotiating payment plans, complicating future tax responsibilities.

Deadlines are integral to the overall system of employment taxation. Observing the due date protects employers from added penalties and reinforces accurate reporting of wages paid and taxes owed. Employers prioritizing timely filing minimize risks, preserve financial stability, and maintain credibility with federal authorities.

How to Complete the 2021 IRS Form 940

Completing the 2021 Form 940 requires careful attention to detail because every line directly affects how much FUTA tax an employer owes. The filing form is structured to guide employers through basic information, wage reporting, exemption categories, and credit calculations. To prepare the return correctly, employers must review payroll records, confirm state unemployment tax contributions, and ensure figures match federal requirements. The 2021 Form 940 Instructions (PDF) provide authoritative definitions and examples that clarify each document section.

• Part 1 – Basic Information: Employers enter the business name, trade name, address, and employer identification number. Accurate completion of these fields ensures that the IRS associates the filing with the correct account.
• Part 2 – Reporting Wages Paid: Employers record the total wages paid to all employees during the year. The form then requests exclusion of FUTA-exempt payments, including fringe benefits, group-term life insurance, and payments made to independent contractors.
• Part 3 – Taxable FUTA Wages: Employers calculate the portion of wages subject to FUTA tax. Only the first $7,000 of wages paid to each employee counts toward the FUTA wage base.
• Part 4 – FUTA Tax Calculation: Employers multiply taxable wages by the FUTA tax rate, then adjust the figure for credits tied to state unemployment contributions. This step requires verifying available credits to avoid overpayment.
• Part 5 – Balance Due or Overpayment: The form asks employers to determine whether additional tax payments are required or if credits reduce liability to zero. Accurate calculations prevent unnecessary correspondence with the IRS.
• Part 6 – Final Review and Signature: Employers confirm the total amount, provide signatures, and include contact information. Once verified, the return is ready for mailing to the IRS.

Form 940 requires consistency across all reported data, from basic information to final calculations. Completing IRS Form 940 thoroughly ensures accuracy, minimizes penalties, and demonstrates an employer’s commitment to fulfilling federal tax responsibilities.

Filing Form Options: Paper, E-File, and Financial Institution Payments

Most providers do not offer electronic filing for 2021 returns. Paper filing is typically required. The filing form must be completed on paper and mailed to the IRS, along with any required tax payments. The appropriate method for sending the IRS form and arranging payment depends on employer preferences, recordkeeping, and the financial institution account used for transactions.

Paper Filing Procedures

• Employers must print and complete the 2021 version of the form, ensuring all fields, such as business name, trade name, and employer identification number, are correct.
  
  
• The completed form is mailed to the IRS address assigned to the employer’s location.
  
  
• Proof of mailing, such as certified mail or courier service receipts, protects employers from disputes over the due date.

Payment Methods Through Financial Institutions

• Using a registered financial institution account, employers can submit tax payments through the Electronic Federal Tax Payment System.
  
  
• Checks or money orders can also be used to make payments, provided they are payable to the United States Treasury.
  
  
• Employers who use EFTPS can schedule quarterly payment obligations in advance to prevent penalties.

Organizing Account and Record Information

• Employers should maintain detailed records of all deposits, including the account used and the transaction date.
  
  
• Documentation from the financial institution supports reconciliation with IRS records during reviews or audits.

Selecting an appropriate filing and payment method supports compliance and provides verifiable documentation. Employers who prepare accurate filings, maintain organized records, and use approved payment systems reduce risks of delays, penalties, and future disputes with federal authorities.

Filing an Amended Return for 2021

Employers may need to file an amended return when the 2021 Form 940 contains errors or reporting obligations are overlooked. Filing an amended IRS form ensures that wages paid, exempt payments, and credits are accurately documented. Employers who complete the amended filing form prevent discrepancies from carrying forward and demonstrate accountability in meeting federal government requirements.

• Reason for Amendment: Employers file an amended return when wages paid were underreported or overstated, which results in an inaccurate FUTA tax figure that must be corrected.
  
  
• Correcting Exempt Payments: Adjustments often involve FUTA-exempt payments such as group-term life insurance, fringe benefits, or compensation to independent contractors misclassified during the initial filing.
  
  
• Identifying Available Credits: Employers may realize they failed to claim available credits for state unemployment contributions, which could reduce overall liability and improve the accuracy of their account.
  
  
• Completing the IRS Form: Employers must check the “amended” box at the top of the filing form, ensuring the IRS processes the document as an updated submission rather than a duplicate return.
  
  
• Supporting Documentation: Employers should attach explanations, such as corrected payroll figures, revised calendar quarter data, or bank records from a financial institution confirming deposits.
  
  
• Ensuring Accuracy: The employer identification number, business name, and trade name must align with IRS records to ensure that the amended return is correctly applied to the employer’s account.

An amended Form 940 is more than a correction. It reflects careful stewardship of employer responsibilities. Employers who provide precise figures, clear explanations, and consistent documentation reduce risks, maintain compliance, and preserve credibility with federal authorities.

IRS Penalties, Interest, and Credit Reduction Rules

When employers fail to file or pay the federal unemployment tax on time, the IRS applies a system of penalties and interest charges. These consequences are designed to enforce compliance and ensure that funds for unemployment compensation remain available. Employers must understand the differences between each penalty category, how interest compounds, and how state credit reduction rules affect the FUTA tax rate. Awareness of these responsibilities helps corporations, partnerships, and sole proprietors more accurately determine the total amount owed.

Overview of Penalties

The IRS applies three primary penalties for noncompliance. Each penalty targets a failure related to filing a form, submitting payments, or meeting deposit requirements. Understanding the distinctions prevents confusion and supports precise financial planning.

1. Failure to File

• Description: Applies when an IRS form is not submitted by the due date.
• Rate applied: 5% of the unpaid tax per month (or partial month).
• Maximum limit: 25% of the unpaid tax.

2. Failure to Pay

• Description: Applies when tax payments are late or incomplete.
• Rate applied: 0.5% of the unpaid tax per month (or partial month).
• Maximum limit: 25% of the unpaid tax.

3. Failure to Deposit

• Description: Applies when required quarterly tax deposits are late or missing.
• Rate applied: Ranges from 2% to 15%, depending on how late the deposit is.
• Maximum limit: 15% of the unpaid deposit.

Interest and Credit Reduction

Interest is added daily to any unpaid balance, including penalties and the original FUTA liability. Employers must also consider state credit reduction rules, which reduce the credits commonly available for wages paid if a state has borrowed from the federal government to fund unemployment compensation. These adjustments can significantly increase the FUTA tax figure, particularly for employers with large payrolls.

Employers who understand how penalties, interest, and credit reductions interact gain a clearer picture of their overall responsibilities. A careful review of figures ensures accurate reporting, while timely payment prevents future disputes. By addressing obligations proactively, employers safeguard financial stability, protect accounts from enforcement actions, and strengthen credibility with the IRS.

Trust Fund Recovery Penalty and Related Risks

The Trust Fund Recovery Penalty, or TFRP, is one of the IRS's most serious enforcement tools. Although the FUTA tax reported on Form 940 is paid entirely from employer funds, businesses that fail to remain current on all employment tax responsibilities often encounter TFRP investigations. Understanding this penalty is essential for corporations, partnerships, and nonprofits that handle payroll accounts.

• Definition and Scope: The TFRP applies when a business withholds federal income or FICA taxes from employees’ wages but does not remit the amounts to the federal government. Because these funds are held in trust for employees, misuse or redirection to other expenses creates personal liability for responsible individuals.
• Responsible Persons: The IRS may assess the penalty against officers, directors, partners, or employees with authority over financial decisions. Authority can extend to signing checks, managing tax payments, or directing funds from a financial institution account. Responsibility is determined by the ability to influence whether withheld taxes reach the federal government.
• Standard of Willfulness: The agency does not require intent to defraud to impose liability. The IRS applies the penalty when an individual knows about the unpaid taxes and either disregards the requirement to pay or shows indifference toward compliance. Paying creditors or covering operating expenses with withheld taxes demonstrates willfulness in the IRS's view.

Understanding TFRP helps employers and individuals recognize the importance of accurate tax payments across all employment taxes. Employers avoid personal liability, reduce enforcement risks, and strengthen trust in their business operations by ensuring withheld funds reach the government as required.

Steps to Resolve FUTA Tax Balances with the IRS

Employers who cannot pay the full balance of FUTA tax reported on the 2021 Form 940 have several structured options available through the IRS. These arrangements provide ways to manage tax payments without leaving accounts vulnerable to immediate collection actions. Understanding each resolution path enables businesses to select the approach that aligns with their financial capacity and long-term obligations.

Step 1: Evaluate Payment Plans

The IRS offers short-term and long-term installment agreements for unpaid balances. Short-term plans apply when the total amount can be paid within 180 days. Long-term agreements extend beyond that period and typically require automatic withdrawals from a financial institution account. Employers must file all the necessary tax returns before the IRS considers a payment plan request.

Step 2: Consider Penalty Relief

The IRS allows employers to seek relief through First Time Abate or reasonable cause provisions. First Time Abate applies if the employer has a clean compliance history for the prior three years. Reasonable cause relief requires documentation showing that natural disasters, serious illness, or missing records prevented timely filing or payment. The IRS resource on penalty relief for reasonable cause outlines detailed criteria for requesting relief.

Step 3: Explore Offers in Compromise

An Offer in Compromise allows an employer to settle for less than the total amount owed. The IRS reviews income, expenses, asset equity, and overall ability to pay before approving. Acceptance rates are limited, and complete financial disclosure is required.

Step 4: Request Currently Not Collectible Status

If payment would create severe financial hardship, the IRS may classify the account as Currently Not Collectible. While this status halts active collection, interest continues to accrue. Periodic reviews determine whether the business remains eligible.

Addressing obligations through structured options documents and compliance efforts may lead to resolution under IRS procedures. By selecting the most appropriate path, businesses protect financial stability, reduce enforcement risks, and create space to focus on recovery and future compliance.

Real-World Case Examples of Employers Addressing Form 940 Issues

Examining real-world scenarios helps illustrate how employers resolve challenges related to unfiled or incorrect Form 940 filings. The following examples highlight the impact of accurate reporting, timely responses to IRS notices, and strategic use of available relief programs. Each case shows how employers managed wages paid, credit claims, and payment arrangements while complying with federal government requirements.

Case One: Small Restaurant Owner

A family-run restaurant discovered its 2021 Form 940 had not been filed. The employer owed FUTA taxes on employees’ wages but lacked sufficient funds for immediate payment. After consulting payroll records, the owner filed the required IRS form, calculated FUTA-exempt payments such as fringe benefits, and applied state credits. The IRS approved a short-term payment plan, allowing the employer to satisfy obligations without disrupting payroll accounts. The case demonstrates the importance of addressing missed filings quickly and documenting available credits thoroughly.

Case Two: Mid-Sized Construction Company

A construction company with multiple trade names and significant seasonal employment fell behind on several employment tax responsibilities, including the 2021 FUTA filing. The employer owed a substantial figure in FUTA taxes and penalties. The business preserved operations by submitting the filing form and negotiating a long-term installment agreement. The IRS accepted reasonable cause relief for part of the penalties after the company provided evidence of lost contracts and limited access to a financial institution during that period. The case shows how thorough documentation and direct engagement with the IRS can reduce liability and restore compliance.

Practical case studies underscore the importance of timely filings, detailed recordkeeping, and proactive communication with the IRS. Employers who manage these responsibilities effectively demonstrate accountability, avoid escalating penalties, and protect their organizations' financial integrity.

Frequently Asked Questions

What happens if I never file my 2021 Form 940?

Failing to file the 2021 Form 940 exposes the employer to ongoing penalties, daily interest charges, and collection actions. The IRS may create a substitute return using available payroll data, often leading to a higher tax figure than the correct return. The account remains open until an accurate filing form is received. Employers should submit the completed IRS Form 940 and include all required pages for processing.

Can I e-file a late 2021 Form 940?

Electronic filing options for the 2021 Form 940 are no longer available. Employers must complete the correct paper filing form and send it to the IRS address assigned to their business location. Mailed submissions should include all required pages and supporting figures for wages paid and FUTA-exempt payments. Ensuring accurate information helps the IRS post the tax return to the correct account without unnecessary delays or additional correspondence.

How long does the IRS have to collect unpaid FUTA tax?

Once the IRS assesses the FUTA tax, the agency has ten years to collect the liability. The period begins when the return is filed and processed, not the original due date. If the return remains unfiled, the collection period does not start, leaving the account open indefinitely. Employers protect their business by filing the correct form and ensuring each page includes complete information about wages paid and credits.

Can I amend my late-filed 2021 Form 940?

Employers may amend a late-filed Form 940 if errors are discovered after submission. The amended filing form requires the “amended” box to be marked clearly and all corrected figures to be included. Supporting documentation should accompany the updated return, such as payroll records or corrected calculations for FUTA-exempt payments. Submitting every required page prevents confusion and ensures the IRS updates the account accurately, reflecting the employer’s corrected liability.

What if my business closed, but I still owe FUTA tax?

Closing a business does not remove the requirement to file Form 940 for wages paid during the operating period. Employers must complete the filing form, marking it as a final return, and provide details about record retention. The IRS may still pursue collection until the liability is satisfied. Submitting all pages accurately ensures the account is updated correctly, even when the employer has ceased operations permanently.

Should I hire a tax professional for Form 940 issues?

Employers with complex accounts or significant penalties may benefit from professional assistance. A qualified tax professional can evaluate wages paid, identify FUTA-exempt payments, and confirm credits for state contributions. Specialists also guide employers through amended returns and installment agreements. Each page of the filing form must be complete and correct, and professional oversight helps ensure accuracy. Engaging an expert can reduce errors while strengthening compliance with IRS expectations.

How can I avoid future Form 940 filing problems?

Employers can prevent issues by creating reliable systems for payroll and tax payments. Critical steps include recording employees’ wages, monitoring due dates, and completing each filing form. Employers should verify every page, including totals and credits, before submission. Establishing organized records, scheduling quarterly payment reviews, and reconciling accounts with a financial institution contribute to timely filings. Strong recordkeeping practices protect employers from penalties and maintain compliance.