Form 940

Form 940 is an annual tax form that U.S. employers use to report and pay their obligations under the Federal Unemployment Tax Act, commonly known as FUTA. This federal tax funds unemployment compensation programs that provide temporary financial support to workers who lose their jobs, and Form 940 is how employers reconcile and report their FUTA tax liability for the year to the Internal Revenue Service. Unlike some other payroll taxes, FUTA tax is generally paid entirely by the employer and is not withheld from employee wages. The FUTA tax rate applies to a specific wage base, and employers who pay their state unemployment taxes on time and in full typically qualify for a significant credit that reduces their overall FUTA tax liability, since the federal and state unemployment systems work together to fund the broader unemployment insurance program. Employers are required to file Form 940 annually, even if they made quarterly deposits toward their FUTA liability throughout the year, and the form serves as the official reconciliation of what was owed versus what was paid. Accurate and timely filing of Form 940 is an important part of maintaining overall federal payroll tax compliance for any business with U.S. employees.