How Can Employers File IRS Form 940 for Annual Federal Unemployment Tax Return in 2025? A Guide to Form 940 Instructions and Online Filing

Have you ever wondered how to simplify your tax filing process while staying compliant with federal laws? Navigating the complexities of IRS Form 940 can be daunting, but it’s essential for employers to meet their Federal Unemployment Tax Act (FUTA) obligations.

This guide will help you understand the filing process, including instructions for 2025, online filing methods, and critical deadlines. Whether you’re a new employer or need a refresher, this blog is your step-by-step roadmap to compliance.

What Is IRS Form 940 and Who Must File It?

Understanding the Purpose of Form 940

Form 940 is an annual tax form used to report your employer’s annual federal unemployment (FUTA) tax. This federal tax funds unemployment benefits, helping workers who lose their jobs. Unlike federal income tax, FUTA tax is solely an employer's responsibility—employees are exempt from FUTA tax. If your business paid wages in the tax year, you’re likely required to complete and file this form.

The FUTA tax rate is 6.0%, but most employers qualify for a credit of up to 5.4% if they pay state unemployment taxes on time, reducing the effective rate to 0.6%. By filing Form 940 with the IRS, you’re fulfilling an essential obligation for your workforce and ensuring compliance with federal law.

Who Is Required to File Form 940?

You must file Form 940 if your business paid wages of $1,500 or more in any calendar quarter or if you employed one or more workers for at least part of a day in 20 or more different weeks in the year. This applies to employers required to pay FUTA tax, whether you’re running a small shop or managing a larger workforce.

Certain employers, such as those with household or agricultural workers, may have different rules. If all your employees are exempt from FUTA tax, such as independent contractors or family employees, you might not need to file.

Step-by-Step Instructions for Completing Form 940

Gathering Necessary Information and Documents

To start, make sure you have these ready:

• Employer Identification Number (EIN): This is required to file your federal tax liabilities.
• Total employee wages, including amounts subject to FUTA tax and those exempt from FUTA tax (e.g., payments for some fringe benefits).
• A record of state unemployment tax payments and documentation for any states classified as credit reduction states.
• Your prior year filing records, which can simplify calculations for the current tax year.

This prep ensures you’ll accurately calculate FUTA tax owed and meet the January 31 due date for filing Form 940.

Filling Out Each Section of the Form

Here’s how to fill out Form 940 efficiently:

1. Employer Details: Enter your EIN, business name, and address.
2. Calculate FUTA Tax: Start with total wages, subtract amounts exempt from FUTA, and calculate FUTA tax payments on the remaining wages at the FUTA tax rate.
3. State Unemployment Credits: Claim applicable credits if you’ve paid state unemployment taxes on time.
4. Credit Reduction States: If applicable, calculate additional tax for states with a credit reduction.
5. FUTA Tax Owed: Determine if you owe additional tax or have overpaid and need a refund.

This form helps you summarize federal unemployment tax liabilities, so double-check each step before you submit Form 940.

Filing Form 940 Online: A Modern Solution for Employers

Benefits of Filing Form 940 Electronically

Filing Form 940 online is faster and more reliable than paper filing. By using the IRS website or approved tax software, you’ll:

• Reduce errors with automatic calculations for FUTA tax owed and credits.
• Receive immediate confirmation, ensuring you’ve met the IRS by January 31 deadline.
• Avoid mailing delays and the need to track a mailing address.

For businesses juggling quarterly payroll tax filings like Form 941, e-filing simplifies your workflow and ensures compliance.

How to Use the IRS E-File System for Form 940

Here’s how to get started with the Electronic Federal Tax Payment System (EFTPS):

1. Register with EFTPS or a trusted e-file provider.
2. Use the guided tools to input details for filing Form 940, such as wages and amount of FUTA tax owed.
3. Double-check entries for taxable wages, state tax credits, and FUTA tax rate adjustments.
4. Submit Form 940 and save the confirmation for your records.

E-filing ensures accuracy and saves time, leaving you free to focus on your business instead of worrying about missed deadlines or incomplete filings.

Key Differences Between Form 940 and Form 941

When to File Form 940 vs. Form 941

Form 940 is used by employers to file annual federal unemployment taxes (FUTA). It’s specifically for reporting and paying unemployment tax and is due by January 31. In contrast, Form 941 is used to report Social Security tax, Medicare tax, and federal income tax withholding on a quarterly basis. You’ll need to file both if your business is required to pay state unemployment and federal payroll taxes.

How to Calculate FUTA Tax and Payroll Tax

To calculate your FUTA tax, start with total wages paid to employees, then subtract any amounts exempt from FUTA (like some fringe benefits). Use Form 940 for this calculation. Meanwhile, Form 941 helps calculate payroll taxes by summarizing quarterly tax when it was due, including wages, tips, and withholdings.

The IRS provides clear instructions for both forms to help you avoid errors. By understanding the difference between Form 940 and 941 filing, you’ll stay compliant and avoid penalties. If your situation is unique or complex, consult a tax preparer to ensure all bases are covered.

Critical Deadlines and Penalties for Late Filing

Key Dates for the 2025 Tax Season

The deadline to file Form 940 for the 2024 tax year is January 31, 2025. If all your FUTA tax is paid by the due date, you have until February 10, 2025, to submit the form without penalties. These dates also apply if you’re filing both Form 940 and Form 941, used for federal income tax withholding, Social Security tax, and Medicare tax. Mark these deadlines to avoid additional tax due or compliance issues.

Understanding Penalties and Avoiding Common Mistakes

Missing the deadline to file can lead to penalties up to 5% per month on unpaid FUTA tax, capped at 25%. Incorrectly applying state unemployment tax credits or skipping required forms like Form 940-V for payments may increase errors. Unlike Form 944, which combines annual reporting, Form 940 is used specifically for FUTA compliance. To stay error-free, follow instructions for Form 940 carefully or work with a tax preparer. If you’re managing multiple filings, like Form 941, ensure accuracy and timely submission.

Key Takeaways

• File a Form 940 by January 31 to report and pay FUTA taxes on time.
• Use Form 940 filing to calculate how much FUTA tax you owe annually.
• Choose Form 940 for unemployment taxes instead of Form 941, which is for payroll taxes.
• IRS Form 940 is January’s key deadline, with penalties for late filing 940.
• Employers may need to file multiple forms, including Form 940 and Form 941, for full compliance.

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