Tax Form 940

Tax Form 940, commonly known as the Employer’s Annual Federal Unemployment (FUTA) Tax Return, is a document used by employers in the United States to report and pay their federal unemployment tax. The tax imposed by Form 940 is used to fund unemployment compensation for workers who have lost their jobs. This tax is separate from state unemployment taxes and is solely levied at the federal level.

Overview:

Tax Form 940 is a required filing for businesses that have paid wages of $1,500 or more in any calendar quarter, or who have had one or more employees for at least part of a day in any twenty different weeks in the current or preceding calendar year. The tax return is filed annually and covers the period from January 1st to December 31st of the preceding year.

Purpose:

The primary purpose of Tax Form 940 is to calculate and report the federal unemployment tax owed by the employer. This tax is a percentage of each employee’s first $7,000 of wages paid during the taxable year. The current tax rate is set at 6% of the taxable wages, but employers who pay their state unemployment taxes in a timely manner may be eligible for a reduced tax rate of 0.6%.

Completing Tax Form 940:

When completing Tax Form 940, employers must provide information regarding their business, the total wages paid to employees during the year, and any wages exempt from FUTA tax. Employers should also report any adjustments to their taxable wages, such as sick pay, tip income, or group-term life insurance.

In addition to providing wage information, employers must also report any amounts paid into state unemployment funds. This information is used to calculate the credit allowed against the federal unemployment tax liability. Employers should ensure that all details are accurately reported to avoid potential penalties or delays in processing.

Filing and Due Dates:

Tax Form 940 must be filed by January 31st of the year following the taxable year. However, if all federal unemployment tax due has been deposited in full and on time, employers have until February 10th to file. Electronic filing is encouraged and can be done through the IRS website.

In certain cases, employers may be required to make payments towards their FUTA tax liability throughout the year. These payments are made using Form 940-V, the Payment Voucher. Employers should ensure that they meet their payment obligations to avoid penalties and interest charges.

Conclusion:

Tax Form 940 plays a crucial role in the administration of federal unemployment taxes in the United States. Employers must understand the obligations and deadlines associated with this form to ensure compliance with federal tax laws. By accurately completing and timely filing Tax Form 940, employers contribute to the stability of unemployment compensation funds and support workers who have lost their jobs. Understanding the intricacies of Tax Form 940 is essential for any business that meets the criteria for filing this form.

Disclaimer:
This glossary is made for freelancers and owners of small businesses. If you are looking for exact definitions you can find them in accounting textbooks.

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