The IRS recently released a draft of the Form 940 Schedule A on November 18, 2020. There are a few changes to the form for 2020. The good news is that there aren’t as many changes as we’ve seen on some other forms, the quarterly Form 941 for example. Employers will need to be aware of credit reductions when completing Schedule A.
This form hasn’t been overhauled with changes due to COVID-19. So, you can learn what you need to complete this form and Schedule A and then get back to planning your Thanksgiving menu!
What is Form 940?
The Form 940 is used to report Annual Federal Unemployment Tax Act, or FUTA. These taxes are used to fund unemployment compensation for those who have lost their jobs.
The majority of employers must pay unemployment taxes at the federal and state levels. The federal unemployment taxes are reported on the Form 940.
What is Form 940 Schedule A?
The Form 940 Schedule A is the Multi-State Employer and Credit Reduction Information. This Schedule helps filers determine the tax rates in different states as well as any reductions that are available in different states.
Who should file Schedule A?
If you are an employer with workers that reside in different states from where your business is operating, you should complete Schedule A and attach it to your Form 940.
How do you complete Schedule A?
First, you will need to enter your Employer Identification Number (EIN). Then you will need to place an X in the box of every state where you were required to pay unemployment taxes. If the state has a reduction rate, you will need to enter this next to your amount of taxable wages.
At the bottom of the Schedule A, you will need to enter your total credit reductions (add up all of the reductions available).
*Tax Tip- the amount entered here must be the same amount that you entered on Line 11 of your Form 990.
What are Credit Reduction States?
If a state has an outstanding unemployment benefits loan from the federal government, they are considered a credit reduction state. Businesses who must pay unemployment taxes to this state will pay a reduced rate until the state has repaid it’s balance to the IRS.
Are there any Credit Reductions States for 2020?
Yes, the only credit reduction state for the tax year 2020 is the U.S. Virgin Islands, or USIV. The reduction rate is .03, which ends up being 3%. Any employers who pay wages to an employee(s) residing in USVI will need to take this reduction into when calculating their total credit reductions.
Does TaxBandits support Form 940 and Form 940 Schedule A?
Yes! You can file the 2020 Form 940 and attach Schedule A with TaxBandits as soon as the finalized draft is available from the IRS. Why paper file and mail your forms? File like it’s 2020 and leave the paper in the past. You can easily file and conveniently e-sign your Form 940 using your Online Signature Pen or Form 8453.
Whether you are a tax professional filing on behalf of your clients, or a business owner who is preparing to file all of your year-end tax returns, like the Form W-2, 1099, and 94x Series, be sure to stock up on your prepaid credits today!
They allow you to lock in your best pricing of the tax season and they never expire! Contact our support team today to learn more about prepaid credits!