Employers are responsible for paying federal unemployment taxes (FUTA) to help fund unemployment benefits. Here’s what you need to know about who must file, payment requirements, and deadlines.
Who Must File Form 940?
Most employers must file Form 940 if they meet either of these conditions:
Paid at least $1,500 in wages in any calendar quarter of the past two years.
Had at least one employee working part of a day for 20 weeks or more in a year (full-time, part-time, and temporary workers count).
If a business changes ownership, both the old and new owners may need to file Form 940 separately unless the new owner qualifies as a successor employer.
FUTA Tax Rate and Credits
The standard FUTA tax rate is 6.0% on the first $7,000 paid to each employee annually.
Employers who fully pay state unemployment taxes on time may receive a credit of up to 5.4%, reducing the FUTA tax rate to 0.6%.
Businesses in credit reduction states (states that owe money to the federal government for unemployment benefits) may have a lower credit, resulting in a higher FUTA tax bill.
Filing and Payment Deadlines
Form 940 is due by January 31 each year. If all taxes are paid on time, the deadline extends to February 10.
Quarterly payments are required if FUTA tax liability exceeds $500 for the year. If it’s less, the amount can be carried over to the next quarter.
If the total FUTA tax liability for the fourth quarter is $500 or less, employers can choose to deposit it or pay it when filing Form 940.
Making Payments
Employers must electronically deposit FUTA taxes once their liability exceeds $500 per quarter.
Payments can be made through:
IRS Business Tax Account
IRS Direct Pay
The Electronic Federal Tax Payment System (EFTPS)