Form 940: federal unemployment tax

Form 940 is the simplest of the payroll returns, and the tax is small per employee. It is still required, and a few details, such as credit reduction states, catch employers out. This guide explains it.

By Muhammad Bilal, Chartered Accountant. Reviewed by Hamza Fida, Chartered Accountant. Checked against official sources on . 2 minute read.

Short answer

Form 940 is the employer's annual federal unemployment (FUTA) tax return. FUTA is 6.0% of the first $7,000 of each employee's wages, usually reduced to 0.6% by a credit of up to 5.4% for state unemployment tax. You file it if you paid $1,500 or more in wages in any quarter, or had an employee in 20 or more weeks. It is due January 31.

At a glance

Rate
6.0% of the first $7,000 per employee
State credit
Up to 5.4%, so usually 0.6% net
Who files
$1,500 of wages in a quarter, or 20 weeks with an employee
Due
January 31; February 10 if fully deposited
Deposits
When the liability exceeds $500
Credit reduction states
Schedule A, higher net rate
Form 940: federal unemployment taxSteps: 1. Track FUTA liability quarterly; 2. Deposit when over $500; 3. Pay state unemployment tax on time; 4. File Form 940.THE PROCESS AT A GLANCEForm 940: federal unemployment tax1Track FUTA liabilityquarterly0.6% of each employee's wagesup to $7,0002Deposit when over $500By the last day of the monthafter the quarter; smalleramounts carry forward3Pay state unemploymenttax on timeLate state payments canreduce the federal credit4File Form 940By January 31, or February 10if all FUTA was deposited ontimeChecked against official sourcesTax BakersForm 940: federal unemployment taxSteps: 1. Track FUTA liability quarterly; 2. Deposit when over $500; 3. Pay state unemployment tax on time; 4. File Form 940.THE PROCESS AT A GLANCEForm 940: federal unemployment tax1Track FUTA liability quarterly0.6% of each employee's wages up to $7,0002Deposit when over $500By the last day of the month after thequarter; smaller amounts carry forward3Pay state unemployment tax on timeLate state payments can reduce the federalcredit4File Form 940By January 31, or February 10 if all FUTAwas deposited on timeChecked against official sourcesTax Bakers
The process at a glance: 1. Track FUTA liability quarterly; 2. Deposit when over $500; 3. Pay state unemployment tax on time; 4. File Form 940.

Who files Form 940?

An employer that paid wages of $1,500 or more in any calendar quarter, or had at least one employee for some part of a day in 20 or more different weeks, in the current or previous year. Different tests apply to household and farm employers. Payments to contractors are not wages and do not count. See independent contractor or employee.

How is FUTA calculated?

StepPer employee, typical case
Taxable wagesFirst $7,000 of the year's wages
Gross FUTA at 6.0%$420
Credit for state unemployment tax, up to 5.4%Less $378
Net FUTA at 0.6%$42

Some payments, such as certain fringe benefits and retirement contributions, are not FUTA wages. Owners of a sole proprietorship or partnership are not employees for FUTA. See payroll taxes explained.

What is a credit reduction state?

A state that has borrowed from the federal government to pay unemployment benefits and not repaid on time. Employers in that state get a smaller credit, so their net FUTA rate is higher. The extra amount is calculated on Schedule A and is usually paid with the fourth-quarter deposit or the return. The IRS publishes the list each November.

How do you file and pay?

  1. Track FUTA liability quarterly

    0.6% of each employee's wages up to $7,000.

  2. Deposit when over $500

    By the last day of the month after the quarter; smaller amounts carry forward.

  3. Pay state unemployment tax on time

    Late state payments can reduce the federal credit.

  4. File Form 940

    By January 31, or February 10 if all FUTA was deposited on time.

See Form 941 and how to run payroll.

See how to register for state unemployment tax.

Does an S corporation owner's salary count?

Yes. A shareholder-employee's wages are FUTA wages, so a one-person S corporation with payroll files Form 940. See S corp owner payroll.

Want FUTA handled with your payroll?

We calculate FUTA, make the deposits and file Form 940 each year with your other payroll returns.

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Questions people ask

What is Form 940?

The employer's annual federal unemployment tax return.

What is the FUTA rate?

6.0% of the first $7,000 of each employee's wages, usually reduced to 0.6% by the credit for state unemployment tax.

When is Form 940 due?

January 31, or February 10 if all FUTA tax was deposited on time.

Do I file Form 940 for a one-person S corporation?

Yes, if the owner is paid wages through payroll that meet the filing tests.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IRS: About Form 940
  2. IRS: Instructions for Form 940
  3. IRS Publication 15 (Circular E): Employer's Tax Guide

Rules and fees change. If you are reading this long after October 1, 2026, confirm the figures with the source before you rely on them.

Payroll and contractorsPayroll taxes explained: FICA, FUTA and state unemploymentFederal tax formsForm 941: the quarterly payroll returnPayroll and contractorsHow to run payroll for the first time

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This guide is general information. It is not tax or legal advice for your situation.