Everything You Need To Know About IRS Form 940

Employer learning everything you need to know about IRS Form 940When you think of employment taxes, W-2 and 1099 Forms typically come to mind first. But what about IRS Form 940 and FUTA tax requirements?

Similar to Form W-2, Form 1099-MISC, and Form 941, your Form 940 2019 must be filed with the IRS by January 31, 2020.

I’m sure you’re probably thinking, “Geez…another tax form?!” Although it is yet another task on your ever-growing to-do list, TaxBandits makes it incredibly easy to file your FUTA tax online and helps to save your small business from costly IRS penalties.

Sit back, relax, and grab a note pad we are gonna give you the full rundown on IRS Form 940. Get 2020 started right by keeping your business tax compliant!

What Your Business Needs to Know About IRS Form 940

In a nutshell, Form 940 is the Employer’s Annual Federal Unemployment (FUTA) Tax Return. FUTA Tax is used for providing funds to pay unemployment compensation to workers who have lost their job.

For 2019 the FUTA tax rate is 6.0% (0.060). Most employers are eligible for a maximum credit of up to 5.4% (0.054) against the FUTA tax. 

The IRS considers this additional credit as the difference between your state unemployment tax payments and the amount you would have been required to pay at 5.4%. 

Any wages subject to the FUTA tax aren’t considered for the state unemployment tax, although, you may be liable for FUTA tax at the maximum rate of 6.0% 

The U.S. Virgin Islands were unable to repay its federal loans by the November 10, 2019 deadline. Therefore making them ineligible for the full Federal Unemployment Tax Act (FUTA) credit for 2019. The U.S. Department of Labor will now impose a credit reduction on the USVI of just 2.7% for 2019.

Note: FUTA taxes are paid by employers only and is not deducted from employee wages.

Who Is Required To Pay FUTA Taxes?

It is required by law that employers pay FUTA taxes based on wages paid to their employees along with the following conditions:

  • If an employer paid $1,500 or more as employee wages during the calendar tax year or
  • An employer had one employee for some hours during the day for 20 or more different weeks during the current or previous tax year.
  • Taxes must be paid for household employees that received cash wages of $1,000 or more in any calendar quarter during the current or previous tax year
  • If you sold or transferred a business during the tax year
  • If you deposited all your FUTA tax on or before the due ate, the IRS allows you to file your Form 940 by February 10, 2020
  • The FUTA tax is applied to the first $7,000 paid to each employee during a calendar year

For Agricultural Employees

  • If you paid $20,000 or more in wages to farmworkers in any calendar quarter during the current or previous tax year or
  • If you had 10 or more farmworkers for some hours during the day for 20 or more different weeks during the current or previous tax period.

Organizations Exempt From Paying FUTA Tax

Organizations that are not required to pay FUTA tax include:

  1. Indian Tribal Governments
  2. Tax Exempt Organizations
  3. Employers of State or Local Governments

What is the deadline to Deposit Your FUTA Tax?

If you deposited your FUTA tax on or before the due date, you’re eligible to file Form 940 by February 10, 2020.

What is the Schedule A (Form 940)? 

States with a credit reduction on wages require a business to file Schedule A, more commonly known as Form 940. The Schedule A is designed to figure your annual Federal Unemployment Tax Act (FUTA) tax.

What is the Worksheet-Line 10 Used For?

The Worksheet-Line 10 is used if either of the following apply to you:

  • Any wages were paid which were excluded from state unemployment tax
  • Any state unemployment tax late were paid late.

If you find you’re required to use the Worksheet, the IRS encourages you to familiarize yourself with it in advance and be prepared with all the necessary information.

Required Information For E-FIling Form 940

  • Business name and EIN (Employer Identification Number)
  • Total payments to all employees
  • Adjustments for state exclusions (if applicable)
  • FUTA tax and balance due or overpayment
  • FUTA liabilities per quarter
  • FUTA liability deposits

Steps To E-File IRS Form 940

  • Create your free TaxBandits account
  • Select “Form 940”
  • Enter Employer Details
  • Choose the appropriate Tax Year
  • Complete Form 940 with our interview-style process
  • Enter Online Signature PIN or complete Form 8453-EMP
  • Review, Pay and Transmit your form directly to the IRS.

Failure-To-File Penalties

Employers that choose not to file their Form 940 by the January 31 deadline will receive a penalty from the IRS. This will result in a 5% penalty of taxes that are due which will be accrued on a monthly basis until the owed amount is paid in full.

Employers can also penalize you for making late payments or not paying the full amount owed. This penalty can range from 2 – 15% of the unpaid tax, depending on how many days your payment is late.

Handle Your Employment Taxes Using TaxBandits

Small business team filing IRS Form 940 for the January 31 DeadlineDesigned with business owners in mind, TaxBandits helps you e-file all employment taxes for your business using one account.

We make it easy to complete your form with more than enough time to spare by the deadline. All you have to do is create your free account and follow our step-by-step filing guide to complete Form 940 in a matter of minutes and transmit it directly to the IRS.

Best of all, our innovative e-filing features will save you time and hassle. Get started today and mark “FILE TAXES” off your to-do list!

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