Payroll taxes
Form 940: FUTA tax rate, who files, due dates and deposits
IRS Form 940 reports federal unemployment (FUTA) tax: 6.0% on the first $7,000 per employee, usually 0.6% after the state credit. Who must file, the February 2, 2026 due date, the $500 deposit rule and how to amend.
Prepared by Aldro Accounting · Updated · Sources checked
The quick answer
Form 940 is the IRS return employers use to report annual Federal Unemployment Tax Act (FUTA) tax, which only employers pay. The tax is 6.0% of the first $7,000 paid to each employee in a year, and a credit of up to 5.4% for state unemployment tax usually brings it to 0.6%. The 2025 Form 940 was due February 2, 2026, or February 10, 2026 if all FUTA tax was deposited on time.
What Form 940 and FUTA tax are
Form 940 is the Employer's Annual Federal Unemployment (FUTA) Tax Return. Together with state unemployment tax systems, FUTA tax funds unemployment compensation for workers who have lost their jobs.
Most employers pay both a federal and a state unemployment tax. Only employers pay FUTA tax. The IRS says not to collect or deduct it from employees' wages.
Schedule A (Form 940) is for multi-state employers and employers in credit reduction states. Schedule R (Form 940) is completed by approved section 3504 agents and certified professional employer organizations (CPEOs) that file an aggregate Form 940.
Who must file Form 940
There are three tests, depending on the kind of employer. Each looks at the current year and the year before, so for a 2025 return the IRS looks at 2024 and 2025.
Scroll sideways to see all columns.
| Employer type | Must file if, in the current or prior year |
|---|---|
| Most employers | Paid wages of $1,500 or more in any calendar quarter, or had one or more employees for some part of a day in 20 or more different weeks |
| Household employers | Paid cash wages of $1,000 or more in any calendar quarter to household employees |
| Agricultural employers | Paid cash wages of $20,000 or more to farmworkers in any calendar quarter, or employed 10 or more farmworkers for some part of a day in 20 or more different weeks |
For the general test, count all full-time, part-time and temporary employees. A partnership doesn't count its partners.
Household employers generally file Schedule H (Form 1040) instead of Form 940. An employer with other employees too can choose to report household employees' FUTA tax on Form 940.
Wages paid to H-2A visa farmworkers count toward the agricultural test, but those wages aren't subject to FUTA tax.
- Section 501(c)(3) organizations exempt under section 501(a) generally aren't subject to FUTA tax
- Services by employees of a state or its political subdivisions are exempt, and no Form 940 is required
- A federally recognized Indian tribal government is exempt if it took part in the state unemployment system for the full year and complied with state law
FUTA tax rate, wage base and the state credit
FUTA tax applies to the first $7,000 paid to each employee during a calendar year, after subtracting payments exempt from FUTA tax.
The rate is 6.0%. Employers generally get a credit of 5.4% when they file Form 940, for a net rate of 0.6%. The maximum credit applies when state unemployment tax was paid in full, by the Form 940 due date, on all the same wages that are subject to FUTA tax, and the state isn't a credit reduction state.
If all taxable FUTA wages were excluded from state unemployment tax, FUTA tax is due at the full 6.0%. The instructions note that some states exclude wages paid to corporate officers, certain union sick pay and certain fringe benefits from state unemployment tax.
Payments exempt from FUTA tax can include certain fringe benefits, group-term life insurance, and retirement plan contributions. For 2025, moving expense and bicycle commuting reimbursements aren't exempt, and P.L. 119-21 permanently eliminates those exclusions after tax year 2025.
Credit reduction states and Schedule A
A state becomes a credit reduction state if it has outstanding federal unemployment loan balances on January 1 for two years in a row and doesn't repay the full amount by November 10 of the second year. The FUTA credit for employers there is reduced until the loan is repaid.
The reduction is 0.3% in the first year, another 0.3% in the second year and another 0.3% for each later year the loan isn't repaid. With a 0.3% reduction, the credit is 5.1% and the effective rate is 0.9%.
The extra FUTA tax from a credit reduction counts as incurred in the fourth quarter and is due by January 31 of the next year. The Department of Labor announces credit reduction states after the November 10 deadline each year, and the IRS lists them in the Instructions for Schedule A (Form 940).
Schedule A is required for any employer that paid wages in more than one state or in any state subject to credit reduction.
When Form 940 is due and when to deposit
Form 940 is due January 31. If all FUTA tax was deposited when due, the employer has until February 10. When a due date falls on a weekend or legal holiday, the next business day counts. For 2025, the due date was February 2, 2026, or February 10, 2026 with all deposits made on time.
FUTA tax is figured every quarter. If the liability for a quarter is $500 or less, it carries forward to the next quarter until the running total is more than $500. Then it is deposited by the last day of the month after that quarter ends.
Scroll sideways to see all columns.
| If undeposited FUTA tax is more than $500 on | Deposit by |
|---|---|
| March 31 | April 30 |
| June 30 | July 31 |
| September 30 | October 31 |
| December 31 | January 31 |
If the fourth-quarter liability, plus any undeposited amounts from earlier quarters, is $500 or less, it can be deposited or paid with Form 940.
All federal tax deposits are made by electronic funds transfer, through EFTPS, IRS Direct Pay or the IRS business tax account.
How the form is laid out
Form 940 has seven parts. Each takes one step of the math, and Part 5 is needed only when the year's FUTA tax is more than $500.
- Part 1: the state or states where state unemployment tax was paid, and whether any is a credit reduction state
- Part 2: total payments (line 3), exempt payments (line 4), payments over $7,000 per employee (line 5), taxable FUTA wages (line 7) and tax before adjustments, line 7 times 0.006 (line 8)
- Part 3: adjustments. Line 9 is line 7 times 0.054 when all FUTA wages were excluded from state unemployment tax. Line 10 covers some excluded wages or late state tax. Line 11 is the credit reduction
- Part 4: total tax, deposits, balance due or overpayment, with direct deposit for refunds
- Part 5: tax liability by quarter, only if line 12 is more than $500
- Parts 6 and 7: third-party designee and signature
Amending Form 940 and late-deposit penalties
To correct a filed return, use the Form 940 for that year and check box a, Amended. The IRS offers amended Form 940 filing through Modernized e-File and encourages it, though paper is still allowed.
An employer that can't pay the full balance can apply online for an installment agreement if it owes $25,000 or less and can pay in full within 24 months.
Late deposits draw the failure-to-deposit penalty: 2% of the unpaid deposit for 1 to 5 calendar days late, 5% for 6 to 15 days and 10% for more than 15 days. The tiers don't add up.
Aldro bookkeeping reconciles every bank and card account each month, so FUTA deposits show in the books. Payroll processing isn't included, and the flat yearly tax price covers everything tax for the business's returns.
Worked example
An employer in one state paid three employees in 2025: $40,000, $12,000 and $5,000, all FUTA wages, with state unemployment tax paid on time. Line 3 is $57,000. Line 5, payments over $7,000 per employee, is $33,000 plus $5,000 = $38,000. Line 7, taxable FUTA wages, is $57,000 minus $38,000 = $19,000. Line 8 is $19,000 times 0.006 = $114. That is under $500, so no quarterly deposit is triggered and it can be paid with the return. In a state with a 0.3% credit reduction, the effective rate is 0.9%, so the tax would be $171, with the extra $57 treated as fourth-quarter tax. If all these wages had been excluded from state unemployment tax, line 9 would add $19,000 times 0.054 = $1,026, for $1,140 in all, which is 6.0% of $19,000.
Common questions
Who has to file Form 940?
Most employers that paid $1,500 or more in wages in any calendar quarter, or had an employee for some part of a day in 20 or more different weeks, in the current or prior year. Household and farm employers have their own tests.
When is Form 940 due?
January 31, or February 10 if all FUTA tax was deposited on time. For 2025, the dates were February 2, 2026 and February 10, 2026.
What is the FUTA tax rate?
6.0% of the first $7,000 paid to each employee in a year. With the full 5.4% credit for state unemployment tax, the net rate is 0.6%, or $42 per employee at the wage base.
Is FUTA tax taken out of employee paychecks?
No. Only employers pay FUTA tax, and the IRS says not to collect or deduct it from employees' wages.
When do FUTA deposits have to be made?
Once the running total of undeposited FUTA tax is more than $500 at a quarter's end, deposit it by the last day of the next month: April 30, July 31, October 31 or January 31.
How do I amend Form 940?
File the Form 940 for that year with box a, Amended, checked. Amended returns can be e-filed through Modernized e-File or sent on paper.
The cheapest way to get your business taxes done: $399 flat.
Business tax filing is $399 USD a year, and it covers everything tax for that year.
How it works
- Tell us about your business. A two-minute form. No payment is collected through it.
- Get your next steps by email. We’ll email you the next steps within one business day. After you sign up we’ll send you a secure upload link for your documents.
- We file it. Our team prepares and files your return. Add bookkeeping for $20 a month if you want it.
What's included
$399 a year covers everything tax for that tax year.
- Every business return for the year. All the federal and state or provincial business returns you need for the tax year: Schedule C, 1065, 1120-S, 1120 and their state returns in the US; T2, or T1 with T2125, in Canada.
- More than one state. Multi-state returns are included at the same price.
- Your personal return. The owner’s personal return (1040 or T1) is included when it’s needed for the business income.
- Quebec. Quebec returns (CO-17, TP-1 and TP-80) are included. Our Quebec pages are in French, and our team works with you in English.
- Extensions and reminders. Extensions (Form 7004 or 4868) and quarterly estimate reminders are included.
- Information returns. 1099-NEC, T4/T4A and T5018 slips are included in the tax price.
- City and excise returns. City and local business tax returns, and state excise returns such as Washington B&O, are included in the yearly price.
- Franchise tax reports. State franchise tax reports, such as the Texas franchise tax report, are included.
- Estimated tax and instalment amounts. We work out your quarterly estimated tax payments in the US, or your CRA instalments in Canada, and tell you what to pay and when.
- Unfiled past years. Each unfiled prior-year return is $399 per tax year, the same flat price.
- Bookkeeping at $20 a month. Unlimited bank and card accounts, monthly reconciliation and monthly statements.
Basic inventory tracking for online stores, such as Shopify, is included. Full cost-of-goods reconciliation is quoted separately. Payroll processing and sales-tax filing aren’t included in bookkeeping. Prices are in USD. Our team prepares and files your return.
Sources
- IRS: About Form 940 · checked October 31, 2026
- IRS: Topic no. 759, Form 940 · checked October 31, 2026
- IRS: Instructions for Form 940 (2025), PDF · checked October 31, 2026
- IRS: Instructions for Form 940 (2025) · checked October 31, 2026
- IRS: FUTA credit reduction · checked October 31, 2026
- IRS: Failure to deposit penalty · checked October 31, 2026
This guide explains general rules from the sources listed. It isn’t tax advice for your situation.