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It's time for businesses to start thinking about their tax returns as tax season approaches. Form 940 is one important form that they should be aware of. In this blog, we'll define Form 940 and talk about its importance. Get ready to understand how this form relates to your business taxes and why you shouldn't forget about it when filing your taxes.

Know What's Form 940?

Form 940- "Employer’s Annual FUTA Tax Return" Federal Unemployment Tax Act(FUTA)- Raises funds to compensate people with unemployment benefits who have lost their jobs. The FUTA tax rate is 6% of the first $7,000 paid to each employee every year.

Should you File Form 940?

Employers should file their 940 Form annually to report unemployment taxes to the IRS, and importantly these taxes are not withheld from the employee's wages and are solely paid by employers.

If you are an employer, who comes under any one of these categories, you must file Form 940 to the IRS:

If the employer has paid a total of $1500 or more to all the employees during any quarter of the current or previous tax year.

If an employer has employees working for 20 weeks of the tax year. These include full-time, part-time, or seasonal/temporary employment. 

Special cases

For Employers of Household Employees:

If you are an employer of household employees, you must pay FUTA tax only on paid wages as cash of $1,000 or more.

For Agricultural Employers:

Have you paid cash wages of $20,000 or more to farmworkers during any calendar quarter in 2021 or 2022?

Have you employed 10 or more farm workers during some part of the day for 20 or more different weeks in 2021, and 2022?

If you come under any one of these conditions, then you must File Form 940.

For Indian Tribal Governments:

Services rendered by employees of a federally recognized Indian tribal government employer (including any subdivision, subsidiary, or business enterprise wholly owned by the tribe) are exempt from FUTA tax and hence they are excluded from filing Form 940. 

For Tax-Exempt Organizations:

Religious, educational, scientific, charitable, and other organizations described in section 501(c)(3) and exempt from tax under section 501(a) generally aren't subject to FUTA tax.

For State or Local Government Employers:

Services by employees of a state, or a political subdivision or instrumentality of the state, are exempt from FUTA tax, and Form 940 is not required.

Form 940 Changes for 2023 Tax Year :

The IRS has released a few changes to Form 940 for the Tax Year 2023.

Credit reduction states for 2023:

A state that has not repaid money that it borrowed from the federal government to pay unemployment benefits is considered a credit reduction state. 

Credit reduction rates of California (CA), Connecticut (CT), Illinois (IL), and New York (NY) is 0.6% and the U.S Virgin Islands (VI) is 3.6% for Tax year 2023.

New Form 940 (sp) available in Spanish for Tax Year 2023:

All employers, including employers in Puerto Rico and the U.S. Virgin Islands, have the option to file new Form 940 (sp) for tax year 2023 as Form 940-PR may no longer be available to file for tax years beginning after December 31, 2022. 

Electronically filing an amended Form 940:

Till date there is only paper filing option for all the amendment forms. Now IRS has come up with the update of electronically filing Form 940, beginning sometime in 2024.

NOTE: If you are a Multi state employer (Check the box on Line 1b in Form 940) or Paid wages subjected to the Unemployment tax laws in credit reduction states(Check the box on Line 2 in Form 940)

You must file Form 940 Schedule A along with Form 940

Information to Know Before You File Form 940:

Business Details

Total payment made to all employees

FUTA Tax and Adjustments If credit reduction is applied.

Balance Due or Overpayment

FUTA liability deposits

When should you file?

The due date to file Form 940 for the 2023 tax year is January 31, 2024.

If FUTA taxes were deposited on the correct deadlines, Form 940 isn’t due until February 10, 2024.

The deadline is based on when the FUTA taxes are deposited:

If the FUTA tax liability is more than $500 for the calendar year, then the payments should be deposited at least for one quarter. 

If the liability is less than $500 in a quarter, it can be carried over to the next quarter. 

Complete your 940 filing before due!

What will happen if you fail to file within the deadline?

Employers will be imposed with penalties if the payment is not made or the 940 is not submitted by the due date. 

The penalty for Form 940 late filing will be increased on a daily basis for amounts that were not deposited properly on time.

If the deposits are made 1 to 5 days late, a 2% penalty will be charged.

This penalty can be increased to 15% if the amounts remain due more than 10 days following the IRS notice.

Employers can either file paper copies or e-file their Form 940 to the IRS. The IRS has revised its threshold rate. According to this, it is mandatory to e-file if there are 10 or more returns in a calendar year beginning in 2024, tax year 2023. 

To reduce the risk of rejection from the IRS, and also to file your return safely and easily use an IRS-authorized e-file provider TaxBandits which provides you the best solution to File your Form 940 online. 

Some exclusive features that TaxBandits provides its users to File Form 940:

Secure Filing and get Instant IRS Updates

Supports to file Form 940 Schedule A

Bulk Upload Options for Tax Pros

Supports Prior year tax filings