Introduction
Form 940, officially titled the Employer’s Annual Federal Unemployment (FUTA) Tax Return, is a vital component of the U.S. tax system. It serves as the mechanism through which employers report their federal unemployment tax liability, contributing to financing unemployment compensation programs administered by the federal government.
1. FUTA Tax and Its Purpose
The Federal Unemployment Tax Act (FUTA) lays the foundation for the FUTA tax, designed to fund unemployment benefits for workers who have lost their jobs. Employers play a pivotal role in this system by contributing a percentage of their employee’s wages to the federal government.
2. Who Needs to File Form 940
Employers fall under the obligation to file Form 940 if they meet either of the following criteria:
- Paid Wages: If an employer paid employees $1,500 or more in wages in any calendar quarter during the current or preceding year, Form 940 must be filed.
- Had Employees: Employers who had at least one employee for any part of a day in 20 or more different weeks during the current or preceding calendar year are also required to file.
3. Components of Form 940
- Employer Information Section: The form initiates with a section requiring basic information about the employer, such as their name, address, and Employer Identification Number (EIN).
- FUTA Tax Liability Calculation: Employers must calculate their FUTA tax liability, typically 6% of the first $7,000 paid to each employee annually. A credit of up to 5.4% for state unemployment taxes paid reduces this rate to 0.6%.
- Adjustments and Credits: Various adjustments and credits can affect the final FUTA tax liability. One notable credit is the credit against the FUTA tax for contributions paid to state unemployment funds.
- Payment Details: Employers must report their total FUTA tax liability, payments made during the year, and any balance due. If the liability is $500 or less, it can be carried forward to the next year.
- Signature and Date: The form concludes with space for the authorized person’s signature and completion date.
4. Filing Deadline
Form 940 is an annual filing requirement. It is generally due by January 31 of the following year. However, employers who have timely deposited all FUTA tax have until February 10 to file.
5. Conclusion
Form 940 is not just a bureaucratic requirement but a fundamental aspect of the employer-employee relationship, ensuring that contributions are made to support unemployment benefits. Employers should diligently calculate their FUTA tax liability, consider available credits, and stay informed about any changes in tax regulations to fulfill their obligations accurately and punctually. Compliance with Form 940 is a legal necessity and a contribution to the broader social safety net.