The IRS Releases a Draft Version of Form 940 for 2024: Here’s What You Should Know
With the year-end tax season around the corner, it’s essential to stay aware of every key IRS update!
The IRS recently released a draft version of Form 940 for the upcoming tax year 2024. The draft version contains several updates, and you, as a filer, must understand them clearly. While these instructions aren’t final, you must stay updated until the original version is released.
In this blog, let’s explore IRS Form 940 and the new updates in the draft version.
Form 940 – An Overview
IRS Form 940, Employer’s Annual Federal Unemployment Tax Return, is the annual tax form that requires employers to report and pay unemployment taxes under the Federal Unemployment Tax Act (FUTA). These payments fund unemployment compensation for workers who lose their jobs.
FUTA (Federal Unemployment Tax Act)
FUTA taxes are the unemployment compensation for the workers. Employers must pay FUTA taxes if they paid $1500 in wages during any calendar quarter or had at least one employee for 20 or more weeks during the quarter. According to the IRS, the FUTA tax rate is 6% and applies to the first $7000 paid to each employee annually.
While the full FUTA tax rate is 6%, employers typically receive a tax credit of up to 5.4% for timely payments, resulting in an effective rate of 0.6% in most cases.
New Updates to Form 940 for 2024
- Credit reduction states:
A credit reduction state is a state that has not repaid loans borrowed from the federal government to cover unemployment benefits. Employers in such states may face a higher FUTA tax due to a credit reduction.
For the 2024 tax year, California, Connecticut, and New York are considered credit reduction states. The FUTA tax credit rate for employers in these states is 0.9%. Also, the credit reduction rate for the U.S. Virgin Islands has yet to be decided.
Amend Form 940 electronically:
The IRS now allows you to electronically file amended Form 940 returns. Previously, amendments were only accepted via paper forms. For the 2024 tax year, you can amend your 940 returns online by checking the ‘Amended’ option on the top of Form 940.
When is the Deadline for Filing Form 941?
Employers must file Form 940 with the IRS by January 31 each year. While this is an annual filing, FUTA tax liabilities must be deposited quarterly. Below are the 940 tax deposit due date based on the calendar year:
- First quarter (January, February, March) – April 30
- Second quarter (April, May, June) – July 31
- Third quarter (July, August, September) – October 31
- Fourth quarter (October, November, December) – January 31
| Note: If the FUTA tax liability is more than $500, you must deposit each quarter. If it is $500 or less in a quarter, you can carry it to the next quarter until the cumulative tax liability is more than $500. |
Bottom line
As described earlier, the draft form includes some significant changes, including the option to amend returns electronically and update credit reduction states. Please note that this draft may undergo changes before the final version is released. Stay tuned for updates when the final version of Form 940 is available.
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