How to complete the Federal Unemployment Form 940 | 2018

Steve Marshall
Sep 6, 2018 · 5 min read

The Federal Unemployment Tax Act (FUTA) is a fund to which every employer is ought to pay an FUTA tax which is a part of their unemployment taxes. The FUTA tax is reported on the unemployment form 940, as required by the Internal Revenue Service (IRS) and the standard tax rate is 6% on the first $7,000 that each employee earns. The FUTA tax is paid quarterly but the unemployment form 940 is filed annually to report the amount of taxes paid and the amounts due. If you regularly report on the unemployment form 940 and pay the taxes on time, then you may enjoy a reduction in the FUTA tax by as much as 5.4%.

What will you need to complete the unemployment form 940?

If you are well-equipped with the information required to complete the unemployment form 940, then it would not seem like an extremely complicated task to you. You have to start with the Employer Identification Number, Legal business name (same that you used while applying for the EIN), Trade name (the title under which you run your operations), and address of your company.

Part 1

Line 1a — If you operate only in one state, then enter your state’s abbreviation.
Line 1b — if you are a multi-state employer, then you have to complete schedule A for unemployment form 940 which enlists all the states where you have employees. Schedule A also includes taxable wages for each state, the reduction rate, credit reduction for each state, and the total credit reduction.

Line 2 — If you have paid wages in a state that is subject to credit reduction, then also you would have to complete Schedule A for your unemployment form 940.

Part 2

In this part, you have to enter;

Line 3 — Here you have to enter all the payments you made to your employees, even if those payments are not subject to FUTA tax.

Line 4 — Here you have to enter all the payments exempt from FUTA tax. These include Fringe benefits, Group-term life insurance, Retirement/pension, Dependent care, and others.

Line 5 — This line says ‘Total of payments made to each employee in excess of $7,000. Here you have to include the excess of payments other than the wage base, and the FUTA wage base is $7,000.

Example,
Consider, you have 3 employees, A, B, and C, and you pay $15,000, $20,000, and $25,000, respectively. If the fringe benefits that each employee receives are $3,000, then the total payments in excess to wages base would be as follow;

Total excess payments $5,000 + $10,000 + $15,000 = $30,000

Considering the above example, you would have to enter the amount $30,000 on line 5 of the unemployment form 940.

Line 6 — Line 6 says ‘Subtotal’, which is calculated by adding line 4 and line 5.

Line 7 — Line 7 is ‘Total taxable FUTA wages’ which is calculated by subtracting line 6 (subtotal) by line 3 (total payments to all employees). This presents the total amount of wages on which the employer is liable to pay the FUTA tax.

Line 8 — This line assumes your FUTA tax if you’re allowed with the maximum credit which is 5.4%. Line 8 is calculated by multiplying line 7 with 0.6% or 0.006

Part 3

Line 9 — This part of the unemployment form 940 accounts for the adjustments for state unemployment taxes. If all the wages that you had paid were excluded from your state unemployment tax, then you would have to multiply line 7 by 0.54% or 0.054 to get the result for line 9.

Line 10 — If some of the wages that you had paid were excluded from the state unemployment tax, then you would have to complete the worksheet present in the instructions of the unemployment form 940. Enter the answer on line 7 of the worksheet, and on line 10 in the form.

Line 11 –This line includes your credit reductions. Enter the amount from Schedule A, and if you were not required to pay the state unemployment tax, then you may skip this line.

Part 4

Line 12 — This line says ‘Total FUTA tax after adjustments’, for this, you would have to add line 8, 9, 10, and 11. Line 10 and 11 would be empty if you have entered an amount in line 9

Line 13 — This line includes the FUTA tax that you have already deposited for the year.

Line 14 — This line requires the difference of the tax that you were required to pay and the amount you have paid as the tax for this year. The required amount is on line 12, if line 12 is greater than line 13, then you would have to mention the difference on line 14.

· If line 14 is greater than $500, then you must deposit the tax

· If line 14 equals to $500 or less, then you may pay it at the time of filing the unemployment form 940.

Line 15 — It says ‘Overpayment’. If line 13 is greater than line 12, it means that you have overpaid the tax. Enter the excess amount on line 15. You will see 2 checkboxes below line 15, these boxes ask whether you want your overpayment to be adjusted in the next return or you need a refund. Check one of the boxes.

Part 5

This part only needs to be filled if the amount entered on line 12 is greater than $500. If not, then move to the next part.

Part 6

This part asks whether you would allow a designee (third-party) to discuss this return with IRS. If you allow, enter his/her details, otherwise, check ‘No’ and move on.

Part 7

This is the concluding part which requires your name, date, and signature.

Conclusion

This brings your unemployment form 940 to an end. You are advised to consult an expert tax preparer because these legal affairs need to be dealt with diligence. Reliance on amateurs might cost you penalties and additional costs for your businesses.

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch
Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore
Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade