Form 940 Instructions: A Guide to FUTA

Who Must File Form 940?

• General employers:  An employer who pays $1,500 in wages in any calendar quarter or employs a worker for 20+ weeks (current or prior year).
• Household employers: Any employer who paid cash wages of $1,000 or more in any quarter. 
• Farm employers: A farm employer who pays $20,000 in cash wages in any quarter or employs at least 10 farm workers for 20+ weeks.
• Successor employers: A successor employer who acquired another business and kept the employees must carry over the FUTA wage base of $7,000 and check the “Successor Employer” box on Form 940.

The Basics of FUTA Rate, Wage Base & State Credit Reduction

FUTA Rate	6% on the first $7,000 of an employee’s wage
State Credit	The state credit can be up to 5.4%, and if fully granted, the net FUTA tax rate is 0.6%.
Credit-reduction states	If a state has unpaid federal UI loans, it would result in at least +0.3% per year (with possible add-ons). DOL will publish this year’s list in November 2025

Form 940 Instructions - Line by Line Guide

Learn how to file and report FUTA tax with our detailed line-by-line Form 940 instructions Part 1: Lines 1a, 2b, 2, Return Type Boxes ( a, b, c, d) – Disclosure to IRS 

• Line 1a – State code  Two-letter USPS code that shows the state where FUTA tax was paid.
• Line 1b – Multi-state  Applicable only when FUTA wages are paid in more than one state. 
• Line 2 – Credit-reduction state  FUTA wages paid in a credit-reduction state. 
• Return-type boxes a-d Check all the types of return that applies.

Part 2: Lines 3, 4, 5, 6, 7, & 8 - Figure FUTA Tax Before Adjustments

• Line 3 -Total paymentsInclude all hourly wages, salary, tips, bonuses, and exempt pay.
• Line 4- 4a, b, c, d, e:  Exempt payments Check boxes for payments that are exempt from FUTA tax. 
• Line 5 - Excess paymentExcess payment of over $7,000 paid to each worker.
• Line 6 – SubtotalSubtotal of Line 4 and Line 5.
• Line 7- Taxable FUTA wagesTotal amount after Line 6 from Line 3. 
• Line 8- FUTA tax before adjustmentsTotal after multiplying Line 7 amount × 0.006 (assumes full credit)

Part 3: Lines 9, 10, 11 – Adjustments to be made, if needed 

• Line 9- 0 % state taxMultiply line 7 by 0.054 if all FUTA wages were exempt from state unemployment tax.
• Line 10- Late/partial state taxComplete the IRS worksheet and calculate the total amount if some wages were exempt or state tax was late.
• Line 11-Credit-reduction additionApplicable if any wages are paid in a credit-reduction state.

Part 4: Lines 12, 13, 14, & 15 – Calculate Tax & Payments 

• Line 12- Total FUTA after adjustmentsTotal after adding lines 8, 9, 10, and 11.
• Line 13- Deposits for the yearFUTA tax deposits for the year, including prior year overpayments.
• Line 14- Balance dueIf Line 12 is more than Line 13: 
• Differences of over $500 must be deposited.
• Differences of less than $500 can be paid with the return. 
• Line 15- OverpaymentIf line 13 is more than line 12, you can opt for a refund or apply it to the next return.

Part 5: Lines 16a-d, 17- Quarterly FUTA Liability (only if Line 12 > $500) 

• Lines 16a-d- Quarterly liabilityFUTA liability (not deposits) for each quarter
• Line 17- Total liabilitySum of lines 16a-d must be equal to line 12.

Part 6: Third-Party Designee 

Name, phone, and a 5-digit PIN of a payroll firm or advisor. 

Part 7 – Sign Here 

Signature of an officer, partner, sole proprietor, or LLC member along with name, title, and contact details 

Part 8 – Paid Preparer Use Only 

This part is only for a paid preparer (CPA, payroll service, etc.)filing on behalf of a payer.

Form 940 Due Dates & Payment Rules

 

Form 940 is due on January 31 (Feb 2, 2026, for 2025 TY, since Jan 31 is a weekend). And the deadline for depositing FUTA on time and correctly is February 10. 

If you miss filing Form 940 on time, you’ll have to pay a 5% interest per month, up to a maximum of 25%. According to Form 940 instructions and rules, you need to deposit payment only if you exceed the minimum threshold of $500 in a quarter. You can make the payment via EFTPS or an authorized third-party payment by the last day of the following month in a quarter.

• Quarter 1 (Jan to Mar): Deposit by April 30 
• Quarter 2 (Apr to Jun): Deposit by July 31 
• Quarter 3 (Jul to Sep): Deposit by October 31
• Quarter 4 (Oct to Dec): Deposit by January 31 

Form 940 Late Deposit Penalties 

• 1 to 5 days late - 2% 
• 6 to 15 days late - 5% 
• 16+ days late but paid within 10 days before first notice - 10% 
• Deposit is unpaid even after 10 days of first notice - Up to 15%

Real-Life Scenarios 

Situation	What the Payer Reports on Form 940
The employer paid $2,200 to its first employee in the first quarter	Report the $2,200 on Line 3, Form 940, since the payment didn’t reach the wage-base limit.
The FUTA liability for 2025 is $480	Pay $480 when you file Form 940 and report it on Line 15. There is no need for quarterly deposits
The operations are in a 0.3 % credit-reduction state	Wages will be multiplied by 0.009 and Schedule A has to be attached
A household payment of $900 was made to their nanny.	Schedule H, along with Form 1040, is required. No need to file Form 940 since the payment doesn’t reach the minimum threshold.
A businessman bought a business establishment in the middle of the year and kept  the staff.	Add the previous employer’s wages to the employees in Line 5 and check the $7,000 limit.

Why E-File Form 940 with Tax1099?

 

• Import payroll totals from your accounting software or via Excel/CSV upload
• Real-time state-credit check and flags if you need Schedule A. 
• Built-in signature and payment options.
• Stores IRS acceptance for 4 years.

Frequently Asked Questions