How to Fill Out IRS Form 940 (w/Examples) + FAQs

To fill out IRS Form 940, gather your annual payroll records and determine your Federal Unemployment Tax Act (FUTA) taxable wages. Then follow Form 940’s step-by-step sections: enter your business information and Employer Identification Number (EIN), report total wages paid, subtract any exempt payments, calculate the taxable FUTA wages (limited to the first $7,000 per employee), apply the standard FUTA tax rate (6% reduced to 0.6% if full state credit applies), account for any adjustments (like state unemployment tax credits or credit reduction for certain states), and finally report any balance due or overpayment. By carefully completing each part of Form 940 and Schedule A (if required for multi-state or credit reduction situations), you can accurately report and pay your annual FUTA tax.

Surprisingly, the FUTA tax – normally just 0.6% (about $42 per employee) – generates over $7 billion each year to fund unemployment benefits. Yet many businesses risk penalties by filing Form 940 incorrectly or late.

• 🎯 Exactly what to do: Step-by-step guidance to fill out Form 940 for any business, from sole proprietors to large corporations.
• 💡 Avoid costly errors: Common mistakes (and IRS penalties) employers face on Form 940, and how to sidestep them with confidence.
• 🌐 Federal vs. state nuances: How FUTA (federal unemployment tax) interacts with SUTA (state unemployment taxes) in all 50 states, including special rules and credit reduction states.
• 📊 Real-world examples: Three detailed scenarios (with tables) showing different types of businesses completing Form 940 correctly – single-state, multi-state with credit reductions, and seasonal employers.
• 🙋 Your questions answered: A handy FAQ section with quick Yes/No answers to the most frequent questions about Form 940, FUTA tax rates, deadlines, exemptions, and more.

Step-by-Step: How to Fill Out Form 940 Like a Pro

Filling out Form 940 is straightforward if you understand each section. Follow these steps to complete the form accurately:

1. Provide Business Information: At the top of Form 940, enter your EIN, business name, trade name (if any), and address. Ensure this matches your last filed business tax forms. Also indicate the “Type of Return” if applicable (for example, check the Final Return box if you closed the business or stopped paying wages during the year).
2. Indicate Your Filing Status (Part 1): In Part 1, tell the IRS about your unemployment tax situation:
   • Line 1a: If you paid state unemployment taxes in only one state, enter that state’s two-letter abbreviation.
   • Line 1b: If you paid wages in multiple states (you are a multi-state employer), check the box on line 1b. You will need to fill out Schedule A (Form 940), listing each state where you had to pay state unemployment taxes.
   • Line 2: Check this box if any wages were paid in a credit reduction state (a state that still owed the federal government for unemployment loans, reducing your FUTA credit). For the tax year, the IRS (via the Department of Labor) designates which states are “credit reduction” states. If this applies, you’ll also use Schedule A to compute the additional FUTA due.
3. Calculate Total Wages and Taxable FUTA Wages (Part 2): This section determines the wages subject to FUTA tax:
   • Line 3 – Total payments to all employees: Enter all compensation paid during the year to employees. This includes salaries, hourly pay, bonuses, commissions, fringe benefits (like taxable moving expenses), and any other wage payments. Include all employees (full-time, part-time, temporary) and all wages, even if some wages won’t be taxable for FUTA. (Tip: Do not include payments to independent contractors or anyone who wasn’t on payroll, as they are not employees.)
   • Line 4 – Payments exempt from FUTA tax: If any wages from line 3 are exempt from FUTA, enter the total exempt amount here. Also check the boxes 4a–4e to identify the types of exempt payments. Common FUTA exemptions include:
     • Fringe benefits (e.g. certain meals or lodging, employer contributions to employee health insurance or cafeteria plans).
     • Group-term life insurance benefits.
     • Retirement/Pension payments (e.g. employer contributions to a 401(k) or pension, excluding the employee’s elective deferrals).
     • Dependent care benefits (up to $5,000 per employee, such as payments under a dependent care assistance program).
     • Other exempt payments: This covers various special cases, such as:
       • Payments to employees that are excluded from “employment” under FUTA, including certain family employees (any wages paid to your spouse, your child under 21, or your parent are not subject to FUTA).
       • Agricultural labor payments in kind and to H-2A visa farmworkers (which are exempt from FUTA).
       • Workers’ compensation payments for on-the-job injuries.
       • Wages paid for domestic service in a private home if you paid less than $1,000 in total cash wages in any calendar quarter or if you’re reporting those household wages separately on Schedule H of your Form 1040.
       • Services performed for a state government or by 501(c)(3) nonprofit organizations (these employers are generally exempt from FUTA altogether).
       • Payments to statutory employees who fall under special rules (e.g. certain agent drivers or traveling salespeople who are treated as employees for Social Security but not subject to FUTA).
         Only include an amount on line 4 if that amount was also part of total wages on line 3. By subtracting these exempt payments, you ensure they won’t be taxed for FUTA.
   • Line 5 – Payments over the FUTA wage base: For each employee, only the first $7,000 of wages is subject to FUTA tax (this $7,000 is the FUTA wage base). Any wages paid to an employee beyond $7,000 in the year are excess wages not taxed by FUTA. On line 5, enter the total sum of wages exceeding $7,000 per employee. In practice, you can calculate this by summing up, for all employees, the portion of each individual’s wages above $7,000.
   • Line 6 – Subtotal: Add line 4 and line 5. (These are the total wages not subject to FUTA, either due to exemptions or the wage base limit.)
   • Line 7 – Total taxable FUTA wages: Subtract line 6 from line 3. This result is the total FUTA-taxable wages for the year (essentially, the portion of your payroll that falls under the $7,000 per worker threshold, minus any exempt amounts). This line represents the aggregate wages on which you actually owe federal unemployment tax.
4. Compute the FUTA Tax and Adjustments (Part 2 continued & Part 3): Now determine the tax due on the taxable wages:
   • Line 8 – FUTA tax before adjustments: Multiply the amount on line 7 (taxable FUTA wages) by 0.006 (0.6%). Most employers who paid their state unemployment taxes in full and on time get the maximum credit of 5.4%, which reduces the effective FUTA rate from 6.0% to 0.6%. Line 8 calculates your tentative tax assuming full credit. (For example, if line 7 is $50,000, then line 8 = $50,000 × 0.006 = $300.)
   • Lines 9 and 10 are for less common adjustments:
     • Line 9 – FUTA tax adjustment for state exclusion: If all the wages on line 7 were paid in a state that does not require unemployment tax on those wages, you cannot claim the usual 5.4% credit. This can happen if, for instance, your entire workforce’s wages were exempt from state unemployment tax (such as certain nonprofit or government employees, or if a state had a 0% experience rate for your business). In that case, check the box and calculate the full 6.0% tax: line 7 × 0.06. (This essentially adds back the 5.4% credit you assumed on line 8.) Most employers will leave line 9 blank or zero, since it’s rare that no state unemployment tax was required on all wages.
     • Line 10 – FUTA credit reduction or late payment adjustment: This line comes into play if you did not receive the full 5.4% credit on some wages due to specific reasons. There are two main scenarios:
       1. State unemployment taxes paid late: If you paid any state UI contributions after the due date for those taxes, the IRS does not allow the full 5.4% credit for those late-paid amounts. You would use a worksheet in the Form 940 instructions to compute the reduced credit and enter the difference on line 10. Essentially, this increases your FUTA tax to compensate for late state payments.
       2. State UI rate below 5.4% (additional credit calculation): If your assigned SUTA rate in any state was less than 5.4% (for example, you are an employer with a low experience rate or a new employer rate below 5.4%), you might initially not have paid “enough” state tax to claim the full credit. However, the law grants an additional credit up to the 5.4% maximum if you paid all required state taxes timely. The Form 940 instructions include a worksheet to calculate any needed adjustment. If your effective state tax rate was low, you may need to enter an amount on line 10 so that your net FUTA ends up at 0.6%. (If you’re unsure, the worksheet helps ensure you don’t overpay FUTA when eligible for extra credit.)
          Most small businesses will have line 9 = $0 and line 10 = $0 if they paid all state taxes on time and all wages were covered by state unemployment insurance. In that case, you skip to line 11.
   • Line 11 – Credit reduction: If you checked line 2 earlier (meaning you had wages in a credit reduction state), this is where you enter the total additional FUTA tax due for those wages. Use Schedule A (Form 940) to compute the credit reduction. On Schedule A, you’ll mark each state you paid wages in and specifically calculate the FUTA taxable wages attributable to any state with a credit reduction. For each such state, multiply the FUTA taxable wages (usually up to $7,000 per employee in that state) by the state’s credit reduction rate. (For example, for 2023 filings, California and New York employers have a 0.6% credit reduction, so an extra $42 per employee; the U.S. Virgin Islands has a 3.9% reduction, or an extra $273 per employee.) Sum up all those extra amounts – that total goes on line 11. Schedule A must be attached to Form 940 if any credit reduction applies.
   • Line 12 – Total FUTA tax after adjustments: Now add up your initial tax (line 8) plus any amounts on lines 9–11. (If lines 9–11 are zero, line 12 will simply equal line 8.) Line 12 is your total FUTA tax liability for the year.
5. Report FUTA Tax Payments and Balance (Part 4): In this section, you reconcile what you owe versus what you’ve already paid through the year:
   • Line 13 – Total FUTA tax deposited for the year: Enter the total amount of FUTA tax payments you made during the year. FUTA tax is typically paid quarterly via the Electronic Federal Tax Payment System (EFTPS) or another electronic payment method. You are required to deposit quarterly if your cumulative FUTA liability exceeds $500 at the end of any quarter. (If it never exceeds $500 until year-end, you can pay in one lump sum with the form.) For example, if your line 12 tax was $800 and you paid $200 each quarter, line 13 would be $800. If your FUTA tax was small (under $500) and you didn’t make deposits, enter $0 on line 13 and you will pay the tax with the return.
   • Line 14 – Balance due: If line 12 (total tax) is more than line 13 (deposits), the difference is the amount you still owe. Enter that on line 14. This balance should be paid when you file the form (by electronic payment or check). The IRS expects most employers to have deposited throughout the year; a balance due typically means either your total FUTA was under $500 (and you’re paying it now) or there was a shortfall in deposits. Note: If the balance due is over $500, you may face a failure-to-deposit penalty; the IRS prefers you deposit timely once the $500 threshold is crossed.
   • Line 15 – Overpayment: If line 13 (deposits) exceeds line 12 (tax), congrats — you overpaid. Enter the overpaid amount on line 15. You can choose to have this amount refunded or applied to next year’s FUTA tax by checking the appropriate box. Overpayments can happen if you overestimated liability or if a credit reduction state repaid a loan late causing a lower actual tax; applying it forward can simplify next year’s payments.
6. Complete Part 5 (if required) and Part 6:
   • Part 5 – FUTA liability by quarter (Line 16 a–d and Line 17): Fill out Part 5 only if your total FUTA tax (line 12) is over $500. Here, you break down your annual FUTA tax liability by quarter. Enter the amount of FUTA tax that accrued each quarter. This isn’t asking for deposits made, but the liability incurred. For example, if by March 31 you hit $600 in FUTA taxes, you’d report that in Q1 and likely have deposited it. If you had additional FUTA liability in Q2, Q3, Q4, list those amounts accordingly. Line 17 should equal the total from quarters, which must match line 12. If line 12 was $500 or less, leave Part 5 blank (since no quarterly breakdown is required when no quarterly deposit threshold was exceeded).
   • Part 6 – Third-party designee: If you want to authorize someone (like your accountant or CPA) to discuss this return with the IRS, check “Yes” and provide their name and phone number and a personal identification number (any five digits the designee chooses). Otherwise, check “No.”
   • Sign and Date (Part 7): An owner, partner, or officer of the company must sign the form, print their name and title, and date it. Include a phone number in case the IRS has questions. If a paid preparer filled out the form, they’ll complete the “Paid Preparer Use Only” section with their details and PTIN.

By following these steps, you’ll have a completed Form 940 ready to file. Always double-check calculations and ensure you’ve attached any required schedules. Remember that Form 940 is an annual return due by January 31 each year (for the prior calendar year’s wages). If you deposited all FUTA tax on time, you get a 10-day grace period (until February 10) to file the form. And if you went out of business or stopped having employees, be sure to mark the form as a final return so the IRS doesn’t expect future filings.

Avoiding Common Form 940 Mistakes (and IRS Penalties)

Even seasoned payroll professionals can slip up on Form 940. Here are some common mistakes to watch out for — and tips to avoid them:

• 🚫 Missing the filing requirement: Don’t assume you’re too small to file. Yes, you must file Form 940 if you paid at least $1,500 in wages in any quarter of the year (or last year), or if you had one or more employees in 20 different weeks. Small businesses often make the mistake of thinking a part-time or seasonal worker doesn’t count – but if you cross the threshold, the IRS expects a Form 940. Conversely, if you truly don’t meet these criteria (e.g. you had no employees or very low wages), you’re not required to file. Know the rules so you file when needed, and skip when not.
• 🚫 Confusing Form 940 with Form 941 (or other payroll forms): Many new employers mix up these forms. Form 940 is an annual FUTA tax return (unemployment tax, employer-paid only). Form 941 is the quarterly return for income tax withholding and FICA (Social Security/Medicare) taxes — very different! Filing the wrong form or reporting FUTA on Form 941 can lead to misapplied payments or penalties. Likewise, agricultural employers should use Form 943 for farm employee FICA withholding, but still Form 940 for FUTA if they meet the farm thresholds. Always use the correct form for each tax.
• 🚫 Incorrect wage calculations: A classic error is miscalculating taxable FUTA wages. Remember, only the first $7,000 of each employee’s wages are taxed for FUTA. Mistake examples include: forgetting to exclude wages over $7,000 per employee (leading to overstating tax), or failing to subtract exempt payments (like certain fringe benefits or payments to family employees), which causes you to pay tax you don’t owe. To avoid this, use a worksheet or software to compute each employee’s taxable portion. Double-check line 5 (excess wages) and line 7 calculations. If you had any fringe benefits or other exemptions, ensure they’re properly accounted for on line 4 so you’re not taxed on them.
• 🚫 Ignoring state “credit reduction” issues: Some employers are unaware their state is a credit reduction state and simply calculate FUTA at 0.6% across the board. This mistake means underpaying FUTA. For example, an employer in a credit reduction state like California or New York (as of recent years) owes an extra 0.6% FUTA on those wages. Failing to include that on Schedule A and line 11 will trigger IRS bills down the line. Always check the latest list of credit reduction states (released each November by the Department of Labor) if you operate in or paid wages in any state that had federal UI loans. Conversely, if you overpaid because you misunderstood the credit rules (say, you didn’t realize you get full credit for timely state taxes even if your state rate was low), amend the return or claim a refund.
• 🚫 Late filing or payment: Filing Form 940 late or paying the FUTA tax late can be costly. The IRS penalty for late filing is usually 5% of the unpaid tax per month (up to 25% max). Late FUTA deposits incur separate penalties ranging from 2% to 15%, depending on how overdue the payment is. Many small businesses get caught by the rule that once your FUTA liability exceeds $500, you must deposit by the end of that quarter – not wait until year-end. To avoid these pitfalls: mark the due dates on your calendar (quarterly and annual), and use EFTPS to make timely deposits. If your FUTA tax is small, pay it when you file by January 31 to avoid any interest. And if January 31 is approaching and you realize you forgot to file, filing even a few days late is better than months late – it reduces penalties.
• 🚫 Mathematical and transposition errors: Simple math mistakes (like adding wages incorrectly or multiplying wrong) are common but easily preventable. Always review the form calculations. Compare line 7 × 0.006 to what you entered on line 8, etc. If using software, cross-verify a few numbers manually. Also ensure your EIN and amounts are written clearly to avoid IRS processing errors. A second set of eyes (having your accountant or colleague review) can catch these small errors before filing.

By being aware of these common errors, you can file a clean and accurate Form 940. The key is attention to detail: verify your eligibility to file, use correct data for wages and credits, adhere to deadlines, and maintain good records (especially of state unemployment tax payments). The result will be a smooth filing with no unexpected IRS notices or penalties. 👍

Form 940 Examples: Real-World Scenarios and Filled-Out Tables

Let’s walk through three different business scenarios to see how Form 940 is completed. These examples will illustrate the calculations for various situations: a single-state employer with some exempt wages, a multi-state employer including a credit reduction state, and a mid-sized year-round employer hitting deposit thresholds. Each example includes a 2-column table showing how key lines on Form 940 would be filled out.

Example 1: Single-State Employer with Exempt Wages (No Credit Reduction)

Scenario: ABC Widgets LLC is a small business in Texas (a state with no credit reduction). In 2024, they had three employees:

• Employee A (Joan) – earned $44,000, which includes $2,000 in company-paid health insurance (a fringe benefit exempt from FUTA).
• Employee B (Sara) – earned $8,000, including $500 contributed to her 401(k) by the company (exempt retirement contribution).
• Employee C (John) – earned $16,000, including $2,000 in health insurance and retirement benefits.

All three employees worked the full year. ABC Widgets paid all Texas unemployment taxes on time (Texas’s state UI wage base is $9,000, but that doesn’t affect the federal wage base of $7,000). We will compute ABC’s Form 940 entries:

Form 940 Input	ABC Widgets LLC (2024)
Total wages paid (Line 3)	$68,000 (=$44,000 + $8,000 + $16,000)
Exempt payments (Line 4)	$4,500 – Total exempt fringe/retirement (health insurance and 401(k) contributions for all three employees)
Excess wages over $7,000 (Line 5)	$42,500 – Wages over the $7,000 FUTA wage base per employee. (Joan: $37,000 over; Sara: $1,000 over; John: $9,000 over. Sum = $37k + $1k + $9k)
Taxable FUTA wages (Line 7)	$21,000 – This is the portion of wages subject to FUTA after exemptions and the $7k cap. (Total $68,000 − $4,500 − $42,500)
FUTA tax before adjustments (Line 8)	$126 – Calculated as $21,000 × 0.006 (assuming full 5.4% state credit)
State exclusion adjustment (Line 9)	$0 – Not applicable (Texas requires state UI tax on these wages, and ABC isn’t a 0% state rate situation)
Additional credit adjustment (Line 10)	$0 – Not applicable (state taxes were paid on time at sufficient rates)
Credit reduction (Line 11)	$0 – Not applicable (Texas was not a credit reduction state)
Total FUTA tax (Line 12)	$126 – This is ABC’s total FUTA liability for 2024.
FUTA deposited during year (Line 13)	$0 – ABC did not make quarterly deposits because the liability never exceeded $500 until year-end.
Balance due with Form 940 (Line 14)	$126 – The full amount is due with the return (payable by Jan 31, 2025).
Overpayment (Line 15)	$0 – No overpayment.

Explanation: ABC Widgets owes $126 in FUTA tax for the year. Because $126 is below the $500 threshold, they weren’t required to deposit it quarterly – they can pay it when filing Form 940. On the form, Part 5 (quarterly breakdown) would be left blank since the total was under $500. They will simply include a payment of $126 with the filed Form 940. This example shows how exempt benefits and the wage base limit reduce the taxable amount significantly (only $21,000 of $68,000 in wages were subject to FUTA after calculations).

Example 2: Multi-State Employer Including a Credit Reduction State

Scenario: XYZ Services Inc. operates in two states. In 2024, they had:

• Employee D (Alice) working in New York, earned $20,000 for the year.
• Employee E (Bob) working in New Jersey, earned $20,000 for the year.

Neither employee had any fringe benefits or exempt wages. Both New York and New Jersey wages are fully taxable for FUTA up to $7,000 per employee. New York was a credit reduction state in 2024 (for example, assume a 0.6% reduction), whereas New Jersey was not. XYZ paid all state taxes on time.

Let’s fill out Form 940 for XYZ:

Form 940 Input	XYZ Services Inc. (2024)
Total wages paid (Line 3)	$40,000 (=$20,000 NY + $20,000 NJ)
Exempt payments (Line 4)	$0 – No exempt wages (all wages were normal taxable wages)
Excess wages over $7,000 (Line 5)	$26,000 – Wages over $7k per employee. (Alice: $13k over; Bob: $13k over. Sum = $26k)
Taxable FUTA wages (Line 7)	$14,000 – Total taxable portion. (=$40,000 − $0 − $26,000)
FUTA tax before adjustments (Line 8)	$84 – $14,000 × 0.006 = $84 (assuming full credit)
State exclusion adjustment (Line 9)	$0 – Not applicable (state UI taxes applied in both NY and NJ)
Additional credit adjustment (Line 10)	$0 – Not applicable (full state credit assumed except for credit reduction)
Credit reduction (Line 11)	$42 – Additional FUTA due to New York’s credit reduction. (NY had 0.6% reduction: $7,000 of Alice’s wages × 0.006 = $42)
Total FUTA tax (Line 12)	$126 – Sum of $84 + $42 credit reduction = $126 total FUTA liability
FUTA deposited during year (Line 13)	$0 – No deposits made (liability was modest and realized at year-end)
Balance due with Form 940 (Line 14)	$126 – To be paid with the return.
Overpayment (Line 15)	$0

Explanation: XYZ Services must file Schedule A with Form 940, because they are a multi-state employer and New York is a credit reduction state. On Schedule A, they will list “NY” and “NJ” as states where they paid wages, and compute the $42 extra for NY. The final FUTA tax comes out to $126, just like in Example 1 – but note that without the credit reduction, it would have been only $84. The extra $42 is essentially a “penalty” on NY employers because New York had an outstanding federal loan. XYZ will pay $126 by January 31. Again, no quarterly deposits were required since the liability stayed under $500. If XYZ had more employees or higher wages requiring deposits, the process would be the same but they would have remitted some tax earlier.

Example 3: Year-Round Employer with Higher FUTA Liability (Quarterly Deposits Required)

Scenario: ACME Manufacturing Co. is a mid-sized employer in Illinois (not a credit reduction state in 2024). They have 12 employees, each earning at least $30,000 during the year. None of the wages are exempt from FUTA. All employees reached the $7,000 FUTA wage base early in the year (by the end of Q1). ACME paid Illinois state unemployment taxes on time at a rate of 3% (below 5.4%, but that’s fine because timely payment allows full credit).

We’ll compute ACME’s FUTA tax and illustrate the need for deposits:

Form 940 Input	ACME Manufacturing (2024)
Total wages paid (Line 3)	$360,000 – (12 employees × $30,000 each)
Exempt payments (Line 4)	$0 – No exempt wages (all regular earnings)
Excess wages over $7,000 (Line 5)	$276,000 – Wages above $7k per employee. (Each employee: $23,000 over; 12 × $23k = $276k)
Taxable FUTA wages (Line 7)	$84,000 – The portion subject to FUTA. (=$360,000 − $276,000)
FUTA tax before adjustments (Line 8)	$504 – $84,000 × 0.006 = $504 (assuming full credit; state rate was below 5.4% but ACME still gets full credit due to timely payments)
Line 9 / Line 10 adjustments	$0 – Not applicable (state UI was paid, and any extra credit for the lower state rate is accounted for; ACME would use the worksheet to confirm full credit)
Credit reduction (Line 11)	$0 – Illinois was not a credit reduction state in 2024
Total FUTA tax (Line 12)	$504 – Total FUTA liability for the year
FUTA deposited during year (Line 13)	$504 – ACME deposited all FUTA tax during the year. (They exceeded $500 in Q1, so they deposited $504 by April 30.)
Balance due (Line 14)	$0 – No balance due (fully paid already)
Overpayment (Line 15)	$0 – No overpayment (paid exactly what was owed)

Additionally, ACME will fill out Part 5 of Form 940 to detail the liability by quarter:

• Q1 (Jan–Mar): $504 (the entire FUTA tax was accrued in the first quarter once each employee hit the $7k wage base; after Q1, FUTA tax for the year was essentially “maxed out” for all employees)
• Q2, Q3, Q4: $0 (no additional FUTA accrued in later quarters, because wages beyond $7k per employee don’t incur FUTA).

They would report $504 on line 16a, and $0 on lines 16b, 16c, 16d. Line 17 would show $504 total (matching line 12).

Explanation: ACME’s example demonstrates a case with a larger payroll. The FUTA tax of $504 meant ACME had to deposit the tax during the year – in fact, by the end of Q1 they had already hit over $500 liability, so they couldn’t wait till year-end. They deposited $504 through EFTPS by April 30 and thus had no balance due when filing the form. They also benefited from the full 5.4% credit despite having a state UI rate of 3% – the Form 940 worksheet would grant them an additional 2.4% credit to reach the maximum, since they complied with Illinois’ requirements. ACME’s Form 940 filing is clean: it shows the tax was paid in full and on time. This scenario also highlights that even though ACME paid $360,000 in wages, only $84,000 was taxed for FUTA due to the per-employee cap.

These examples cover a range of situations you might encounter. No matter your business size or setup, the core principle is the same: calculate taxable wages, apply the FUTA rate (with credits), and make sure to account for any special cases like state credits or multi-state issues. Always refer to the latest IRS instructions if your scenario is more complex (for instance, mergers, PEOs, or successor employers have additional rules).

Federal vs. State Unemployment Taxes: How FUTA and SUTA Work Together

Unemployment insurance in the U.S. is a joint federal-state system. Understanding the distinctions between federal (FUTA) and state (SUTA) unemployment taxes will help you fill Form 940 correctly and not miss out on credits:

• Separate taxes, different purposes: FUTA is the federal unemployment tax, a uniform tax that all subject employers pay to the IRS via Form 940. SUTA, also known as state unemployment tax (or contributions), is paid to your state’s workforce agency to fund state unemployment benefits. Every state (and D.C., Puerto Rico, and the U.S. Virgin Islands) has its own unemployment insurance program, tax rates, and wage base. FUTA funds are used to administer state programs and provide loans or extension benefits, while SUTA funds the actual weekly benefits paid to unemployed workers in that state.
• Wage base differences: The FUTA wage base is fixed at $7,000 per employee nationwide – it hasn’t changed in decades. States, however, set their own taxable wage base for unemployment. These vary widely: for example, California uses $7,000 (matching FUTA), Florida about $7,000 as well, whereas Washington State is over $55,000, and Hawaii exceeds $50,000. This means in some states you pay state unemployment tax on a much higher portion of each employee’s wages than the FUTA $7,000. Despite these differences, for Form 940 you always cap at $7,000 per person. Once an employee’s year-to-date wages exceed $7k, you stop counting FUTA – even if your state keeps charging its tax on additional wages.
• State experience rates vs. FUTA rate: States assign each employer a SUTA tax rate typically based on their “experience” (i.e. how often their former employees claim unemployment benefits, and the health of the state’s UI trust fund). These rates can range from near 0% for certain new or high-performing employers up to 5%, 6% or more for businesses with many claims. FUTA’s rate is 6.0% for everyone, but nearly all employers get a credit for SUTA paid, up to 5.4%. So in practice, the standard net FUTA rate is 0.6%. As long as you pay your state taxes timely, even if your state rate is low (say 1% or 2%), the IRS grants an “additional credit” so you still only pay 0.6% FUTA. This encourages states to keep their own systems and incentivizes employers to pay state tax on time. Important: If you pay state taxes late, you lose some or all of that credit – hence the adjustments on Form 940 Part 3.
• Credit reduction states: When states borrow from the federal Unemployment Trust Fund (often during recessions when state funds run dry) and don’t repay timely, the FUTA credit for employers in those states is reduced. This is essentially a way for the federal government to recover the loan by charging employers extra FUTA. For example, in recent years California and New York employers saw their FUTA effective rate double from 0.6% to 1.2%, because their states had outstanding federal loans for multiple years. The U.S. Virgin Islands has had credit reductions for many years – in 2023 its employers faced a 3.9% credit reduction, meaning an effective FUTA rate of 4.5%. Credit reductions are announced late in the year. Employers in affected states must use Schedule A of Form 940 to calculate the additional tax. This is why Part 1 of Form 940 asks if you paid wages in a credit reduction state. If yes, even if you operate in other states too, you’ll have that extra FUTA to pay. Conversely, if your state has no federal loan issues, your FUTA remains at 0.6% (assuming full credit).
• All states considered: Each state may have quirks in its unemployment law, but for FUTA purposes the playing field is leveled via the credit system. For instance, a few states (like Alaska, New Jersey, Pennsylvania) require employees to contribute a small portion to state unemployment funds. However, those employee contributions do not count toward the employer’s 5.4% FUTA credit – the credit is only for employer-paid state taxes. Some employers operate in multiple states with varying rules; Form 940’s Schedule A helps consolidate that information. Also, some employers (like Indian tribal governments or nonprofits) might be exempt from state UI tax entirely (tribes can opt to pay claims instead of tax, nonprofits often don’t pay SUTA). If such an employer is exempt from SUTA and meets requirements, they are usually exempt from FUTA as well.
  • Always confirm if any state-level exemption or special program (like a voluntary contribution or rebate) has implications for FUTA. Generally, if you didn’t have to pay a state unemployment tax on certain wages because of an exemption, you might owe the full FUTA on those wages (0.6% or even 6% if completely exempt from state UI). On the flip side, if you overpaid state taxes or received a state refund, the IRS expects you to recompute FUTA (there’s a mechanism for that, though not common).
• State ID and Schedule A: When filing Form 940, if you’re in one state, you’ll simply input that state’s abbreviation on line 1a. If you’re in multiple states, you check 1b and attach Schedule A. On Schedule A, you list every state (and territory) where you had to pay state unemployment taxes and indicate if any of those states have a reduction. Make sure you have your state unemployment account numbers – while Form 940 doesn’t ask for them, you should have them handy and ensure you’ve registered in each state where you have employees. State agencies often communicate directly with the IRS in case of discrepancies, so consistency matters (for example, the total taxable wages you report to states vs. on Form 940 should align after adjustments).

In summary, FUTA and SUTA are intertwined: paying your state dues on time earns you the hefty FUTA credit. Form 940 essentially reconciles the federal piece by asking, “Did you pay your state taxes? Is your state in good standing federally? If yes, you only pay 0.6%. If no, here’s the extra (through line 10 or 11 adjustments).” To manage this:

• Always stay current on your state unemployment taxes (and know your state’s wage base and rate).
• Each year, check if your state is on the credit reduction list.
• Keep good records of payments to state agencies in case the IRS inquires or if you need to do the credit reduction worksheet for late payments.

By understanding these federal-state distinctions, you’ll handle Form 940 confidently, knowing how the IRS (federal) and your state unemployment agency work together in collecting unemployment taxes.

Key Concepts and Entities Related to Form 940 (FUTA) – Explained

When dealing with Form 940 and unemployment taxes, several terms and agencies come up regularly. Here’s a rundown of the key concepts, entities, and acronyms you should know, in context:

• Internal Revenue Service (IRS): The U.S. federal tax authority that administers and collects FUTA tax. You file Form 940 with the IRS, and they use those funds (deposited into the Federal Unemployment Trust Fund) to support state unemployment programs and pay federal unemployment costs. The IRS also enforces filing requirements and can assess penalties for late filing or payment of Form 940.
• Federal Unemployment Tax Act (FUTA): The federal law (part of the IRC – Internal Revenue Code) that imposes a payroll tax on employers to fund unemployment insurance. “FUTA” is often used interchangeably to refer to the tax itself. The current FUTA tax rate is 6.0% on the first $7,000 of each employee’s annual wages. However, as discussed, a credit of up to 5.4% for state taxes usually reduces the effective rate to 0.6%. FUTA tax is paid entirely by employers; employees do not have this tax withheld from their paycheck.
• State Unemployment Tax Act (SUTA): While not a single federal act, “SUTA” (also called SUI – State Unemployment Insurance tax) refers to each state’s unemployment insurance tax system under their own laws. Employers pay SUTA to their state workforce agencies. Paying SUTA on time is what earns you the FUTA credit. Each state has its own tax rates, wage base, and rules (all within federal guidelines). When you see “SUTA dumping” laws or state experience rates, that’s all at the state level. SUTA and FUTA work together – for example, if a business transfers employees between states, they may need to allocate wages for state UI, but for FUTA it’s the combined first $7k regardless of state.
• Employer Identification Number (EIN): A unique 9-digit number issued by the IRS to identify your business entity for tax purposes. You must have an EIN to file Form 940 (and other business tax forms). It’s included at the top of Form 940. If you have multiple businesses with separate EINs, each files its own Form 940. (Exception: certain agents or Certified Professional Employer Organizations (CPEOs) file on behalf of clients, but that’s specialized.) Make sure the EIN on Form 940 matches the one on your quarterly 941s and other filings.
• Form 940: The annual federal unemployment tax return. This form summarizes the wages you paid, calculates the FUTA tax due, and reports any deposits or balance due. It consists of Parts 1–7 and potentially Schedule A. The form is typically two pages. The Schedule A (Form 940) attachment is required if you are a multi-state employer or if any state you paid wages in had a credit reduction. Schedule A is basically a worksheet to list states and compute the credit reduction amount for each, then sum it for line 11 of Form 940.
• Form 941 vs. Form 940: These are two distinct payroll tax forms that employers often hear about. Form 941 is the Employer’s Quarterly Federal Tax Return – it’s filed four times a year and covers federal income tax withholding and FICA taxes (Social Security and Medicare) that you’ve withheld from employees’ paychecks (plus the employer’s share of FICA). Form 940, in contrast, is annual and covers only FUTA tax (which is solely employer-paid). Nearly all employers with staff will file both 940 and 941s, but they serve different purposes. (There are also Form 943 for agricultural employers annually, Form 944 for very small employers annually, etc., but Form 940 is universal for FUTA except household employers who use Schedule H.)
• Unemployment Trust Fund (UTF): When you pay FUTA tax, the money goes into the federal Unemployment Trust Fund, managed by the U.S. Treasury. This fund has separate accounts for each state. State unemployment taxes you pay go into your state’s account in this fund, and FUTA taxes mostly go into a general account that funds federal responsibilities (like administration costs and loans). When a state’s UI fund runs out, they borrow from this trust fund (called Title XII loans). Outstanding loans over multiple years lead to credit reductions (as we saw). So, FUTA tax and this trust fund act as a backstop for states.
• Department of Labor (DOL): Specifically, the Employment and Training Administration (ETA) within the U.S. DOL works in tandem with the IRS on unemployment insurance matters. The DOL is responsible for certifying state unemployment programs and announces credit reduction states each year. They also monitor state compliance with federal UI rules. While you won’t directly interact with DOL when filing Form 940, the form instructions and Schedule A often refer to DOL announcements (for example, the list of credit reduction states is determined by DOL and published annually, which the IRS then uses). Essentially, DOL handles the policy and state coordination side; IRS handles the tax collection side.
• State Workforce Agency (SWA): This is a generic term for your state’s unemployment tax authority (sometimes called Department of Labor, Employment Security, Workforce Development, or similar in each state). This agency assigns your state UI account number, your tax rate, and collects your state unemployment taxes quarterly. They also issue annual statements of taxable wages and contributions. For Form 940, you need to know what you paid in state taxes and whether those were on time. Sometimes, if there’s a discrepancy (say you claimed more state tax credit than you actually paid), the IRS may coordinate with the SWA to verify. It’s good practice to reconcile your FUTA taxable wages with what you reported to the state(s). Also, if you operate in multiple states, you might have multiple state accounts – each state’s info feeds into the Form 940 Schedule A if credit reduction applies.
• Schedule H (Form 1040): This is not part of Form 940, but it’s relevant for household employers. Schedule H is a form filed with an individual’s personal tax return (Form 1040) to report household employment taxes, including FUTA for domestic workers like nannies or gardeners. If you only have household employees and you file Schedule H, you do not file Form 940. Conversely, a business files Form 940 for its employees. It’s possible someone might have both (e.g., you run a business and also have a household nanny). In that case, the business wages go on Form 940 and the nanny’s FUTA goes on Schedule H – keep them separate. The key point: household FUTA rules differ slightly (the $1,000/quarter threshold and option to file with 1040). This distinction is an example of a niche scenario that Form 940 instructions mention under exempt payments.
• Third-Party Designee: This refers to the Part 6 of Form 940 where you can authorize a person to discuss your return with the IRS. It’s usually an accountant, payroll provider, or tax pro who you’d like the IRS to be able to talk to if questions arise. If you check “Yes” and fill that out, the IRS can call them first instead of you, which can be convenient. If you use a Payroll Service Provider or Professional Employer Organization (PEO), often they handle FUTA for you (sometimes even filing an aggregate Form 940 for multiple clients under their umbrella if they are a Certified PEO). In that case, you might see references to Schedule R (Form 940), which PEOs use to report each client’s share of FUTA. For most direct employers, Schedule R won’t apply – it’s just good to know it exists if you ever outsource your HR to that extent.

By familiarizing yourself with these entities and terms, the language in Form 940’s instructions and requirements will make a lot more sense. You’ll recognize that IRS and DOL are coordinating but handling different parts, that FUTA and SUTA are two sides of the same coin, and that various forms (940, 941, Schedule H, etc.) cover different types of employment taxes. Essentially, you now have the vocabulary of FUTA at your fingertips!

Pros and Cons of FUTA Tax Compliance for Employers

Like any tax obligation, complying with FUTA (Federal Unemployment Tax Act) requirements has its advantages and drawbacks from an employer’s perspective. Here’s a quick look at the pros and cons:

Pros (Advantages)	Cons (Challenges)
Helps Fund Unemployment Benefits: By paying FUTA, employers contribute to a safety net for workers who lose jobs, which can stabilize the economy and local communities.	Adds to Payroll Costs: FUTA is an additional expense for employers (up to $42 per employee in normal cases, more in some states), which adds to the cost of hiring staff.
Straightforward Calculation: FUTA tax is simple to compute (a flat rate on a small wage base). With the generous state credit, most employers pay a low effective rate, and the form is annual, not too burdensome.	Complexities for Multi-State Employers: Employers operating in multiple states must navigate different state rules and possible credit reductions, adding complexity to FUTA calculations (e.g., filing Schedule A).
Encourages Compliance with State Taxes: The FUTA credit system rewards timely payment of state unemployment taxes. This ensures employers stay current with state obligations to get the federal tax break.	Penalties for Mistakes: Failure to file or deposit FUTA taxes correctly can result in significant IRS penalties (up to 25% for late filing, and up to 15% for late deposits), creating financial risk if overlooked.
Unified Federal Standard: FUTA provides a uniform base and framework across all states, making it easier for federal oversight and for employers to know the minimum obligations regardless of state differences.	No Direct Benefit to Employer: Unlike some taxes that might directly benefit the business, FUTA is purely a cost of compliance – employers themselves don’t receive unemployment benefits, yet must administer and pay this tax.
Supports Federal Loan Programs: In times of high unemployment, FUTA funds loan the states money to pay benefits. This can prevent state UI funds from insolvency without immediate burden on employers – costs are spread via gradual credit reductions later.	Increasing Rates in Certain Cases: If a state’s fund is poorly managed (needing federal loans), employers in that state see FUTA costs rise via credit reduction. This can feel like an unpredictable “cons” – employers end up paying for state shortcomings with higher federal taxes.

Every responsible employer will weigh these factors. Essentially, FUTA is the cost of participating in the national unemployment insurance framework. While it’s an added cost and requires compliance effort, it also ensures a baseline of support for workers and uniformity in the system. By staying compliant (paying on time, filing accurately), you minimize the downsides (avoiding penalties and extra taxes) and simply treat FUTA as another standard business expense for a good cause.

Seasonal, Agricultural, and Other Employer Types: Special FUTA Considerations

Not all businesses operate year-round with a standard workforce. Different types of employers have unique scenarios under FUTA rules. Here we compare how seasonal vs. year-round employers, as well as other special cases, are treated:

• Seasonal Employers vs. Year-Round Employers: If you run a seasonal business (for example, a summer resort or holiday-themed store), you might only have employees for part of the year. The FUTA requirements still apply, but you may find:
  • Intermittent employment: It’s possible you won’t meet the FUTA coverage threshold in a given year if your wages or weeks of employment are low. For instance, if you only operate 10 weeks a year and never paid $1,500 in a quarter, you might avoid FUTA for that year. Year-round businesses almost always surpass these thresholds.
  • Quarterly deposits: A seasonal employer might accrue FUTA liability only in the quarters they operate. If you don’t hit $500 until, say, Q4, you deposit then. Year-round employers accrue steadily. The IRS allows seasonal employers to carry over sub-$500 liabilities across quarters, which is helpful.
  • Filing even if off-season: If you met the threshold in the prior year, you’re required to file Form 940 for the current year even if you didn’t operate in some quarters. For example, a ski lodge that met FUTA threshold in 2023 but had no employees in summer 2024 still files for 2024 (perhaps with smaller numbers). Be sure to file a Final Return if you cease operations entirely.
  • State considerations: Some states offer seasonal employers adjusted unemployment insurance rules (like not charging for off-season layoffs), but that doesn’t change FUTA – you still count those seasonal wages toward the $7k base if paid.
• Agricultural Employers (Farm Work): Farms have their own FUTA rules:
  • The threshold for coverage is different: You must file Form 940 if you paid $20,000 or more in cash wages to farm workers in any quarter OR employed 10 or more farm workers during at least 20 different weeks in the year (these workers don’t all have to be full-time or simultaneous). This is a higher bar than regular $1,500/1 employee rule, reflecting that small farms might be exempt.
  • Wages to farm workers are taxable for FUTA only if those thresholds are met. Once covered, the FUTA calculations are the same 0.6% on first $7k of each farm worker’s cash wages.
  • There are some special exemptions: payments to H-2A visa agricultural workers are not subject to FUTA (they are listed under exempt payments). Also, certain non-cash payments (like farm produce or lodging provided to farm workers as part of pay) are exempt from FUTA. So a farm employer might have more to exclude on line 4.
  • Farms file Form 940 just like other businesses once they’re subject. They also have a separate Form 943 for reporting withheld income and FICA taxes annually, but that doesn’t replace Form 940 – it’s in addition.
• Household Employers: If you hire domestic help (nanny, caretaker, housekeeper) in your private home, you’re dealing with a special category:
  • Threshold: Only $1,000 in wages in a quarter (current or last year) triggers FUTA for household employment. Many casual babysitters or part-time help won’t hit that. But if you do cross it, FUTA applies to those wages.
  • Reporting: Most household employers choose to file Schedule H with their personal tax return to report and pay FUTA (and Social Security for the employee). Schedule H simplifies things by combining it with Form 1040. In that case, you do not file Form 940 at all.
  • If you operate a household and also a business, keep them separate. For example, you run an LLC with employees (you file 940 for that), and you have a nanny at home (you file Schedule H for that). The IRS treats business payroll and household payroll independently.
  • Wages paid to household employees are not subject to state unemployment in some states until thresholds, but generally if you pay FUTA, you likely owe state UI too (varies by state). Make sure to follow both sets of rules.
• Nonprofit and Government Employers:
  • 501(c)(3) Organizations (Charitable, religious, educational nonprofits): These organizations are exempt from FUTA. If all your employees work for a 501(c)(3) nonprofit, you do not file Form 940. (They’re also usually exempt from state unemployment tax, although many nonprofits can elect to participate or reimburse the state for claims.) Caution: Not all nonprofits are 501(c)(3). For-profit entities or nonprofits under other sections (like a trade association 501(c)(6)) are not automatically exempt from FUTA.
  • Government entities: Employees of state governments, local governments, and federally recognized Indian tribes are generally exempt from FUTA. States and tribes have their own unemployment systems (tribes can opt out if they cover employees under state law or reimburse). If you’re a public employer, no Form 940 is needed. One exception: some smaller political subdivisions or special cases might mistakenly receive a Form 940 package – but they’re not liable.
  • However, note that if a nonprofit or government entity has an unrelated business with separate employees (rare, but say a state university runs a side commercial enterprise), those employees might not be exempt. This gets complex – usually consult a tax advisor in such fringe cases.
• Single-Member LLCs and Sole Proprietors: A single-member LLC (SMLLC) that hasn’t elected corporate tax status is disregarded for federal income tax, but not for employment taxes. For payroll purposes, the LLC is treated as a separate employer. If you, as a sole proprietor or SMLLC owner, have employees, you must get an EIN and file Form 940 (and 941s) in the entity’s name. The nuance:
  • If you’re a sole proprietor, wages you pay to your spouse, your own child under 21, or your parent are exempt from FUTA (as noted earlier). This is a family business exception. Those family members still count as employees for other taxes, but you don’t pay FUTA on them. That could mean a sole proprietor with only family employees might not owe any FUTA tax at all. You’d still file Form 940 if thresholds met, but line 4 “payments exempt” would equal line 3 wages, and line 7 taxable wages would be $0.
  • Partners in a partnership are not employees (so no FUTA on draws to partners). But an LLC taxed as partnership follows that too – the members aren’t employees for FUTA. Only non-owner employees count.
  • S Corporation owners are employees for payroll purposes, so an S Corp with one owner paying themselves a salary must file Form 940 if that salary meets the threshold. There is no owner exemption like the sole proprietor has for spouse/child. So entity type can affect FUTA obligations.
• Professional Employer Organizations (PEOs) and Outsourced Payroll: If you enter a PEO arrangement (employee leasing), the PEO might be the one actually filing Form 940, using their EIN, covering your workers (who are co-employed by the PEO). Certified PEOs (CPEOs) are allowed by the IRS to assume the FUTA liability – they then file an aggregate Form 940 and attach Schedule R to allocate tax among clients. As a small business owner using a PEO, you might not file Form 940 at all (the PEO does it). But ensure the PEO is certified; otherwise you could still be held liable. This is a complex but important distinction for companies that outsource HR – always clarify who is considered the employer for FUTA. The majority of small businesses handle their own payroll and will file Form 940 themselves.
• Successor/Predecessor Employers: If you bought or sold a business during the year, special rules allow a “successor” employer to count wages paid by the previous employer toward the $7,000 base (so employees don’t restart the FUTA base mid-year). Form 940 has a checkbox if you are a successor or if you’re filing a final return for a predecessor business. In practice, if you acquired a company and continued employing its people, you get to apply the wages they already earned with the old owner against the $7k base. This prevents double taxation. You’d likely need to attach a statement or follow instructions in such cases. This is a less common scenario but good to be aware of if your business underwent reorganization.

In all these special cases, the Form 940 instructions provide guidance. Seasonal employers often mark “Seasonal Employer” on their 941 forms to avoid delinquency notices for zero-wage quarters – but Form 940 is just annual, so no similar checkbox is needed (you either file or not based on annual totals). Agricultural and household employers have tailored sections in the instructions (and in Pub 51 and Pub 926 respectively). The main takeaway is that while the fundamentals of FUTA tax calculation remain consistent, eligibility and certain details can differ by employer type.

Bottom line: Identify which category your business falls into. If you’re seasonal, be mindful of thresholds each year. If you’re a farm, track those cash wages and exemptions. If you’re a household employer, decide whether to use Schedule H. And if you’re exempt (nonprofit/government), know that you can forego FUTA entirely. This ensures you apply the correct rules, file the right forms, and pay no more tax than necessary under FUTA.

FAQs – Frequently Asked Questions about Form 940 and FUTA

Q: Do all businesses with employees have to file Form 940?
A: Yes. If you paid $1,500+ in wages in any quarter or had a worker in 20+ weeks (this year or last), you must file Form 940, even if your FUTA tax is $0.

Q: I’m the only employee of my LLC – do I need to pay FUTA?
A: Yes. If your single-member LLC (or S Corp) paid you wages above the threshold, it must file Form 940. Being the owner doesn’t exempt your own salary from FUTA (unless you’re a 501(c)(3) org).

Q: Are nonprofits or churches exempt from FUTA?
A: Yes. Qualified 501(c)(3) nonprofits, religious organizations, and government entities are exempt from FUTA by law. They generally do not file Form 940 or pay FUTA tax on their employees.

Q: Is Form 940 the same as Form 941?
A: No. Form 940 is an annual return for federal unemployment taxes (FUTA), which are employer-paid. Form 941 is a quarterly return for income tax withheld and FICA taxes (Social Security and Medicare).

Q: Can I file Form 940 electronically?
A: Yes. The IRS accepts e-filing of Form 940. Many payroll software and tax professionals can electronically file it on your behalf. E-filing is secure and often faster for processing.

Q: Do household employers need to file a Form 940?
A: No, not usually. If you only have household employees (nannies, etc.), you can report FUTA on Schedule H with your personal tax return instead of filing Form 940 separately.

Q: What is the FUTA tax rate and has it changed for 2024?
A: No. The FUTA rate remains 6% on the first $7,000 of each employee’s wages. Most employers get a 5.4% credit for state taxes, making the effective rate 0.6%. There has been no rate change in recent years.

Q: If I paid state unemployment taxes, do I still owe FUTA?
A: Yes. Paying state unemployment (SUTA) is required, but you also must file and pay FUTA. The good news is timely state payments earn you up to a 5.4% credit, so you typically pay only 0.6% FUTA.

Q: My FUTA tax came out to $0 – do I still file the form?
A: Yes. If you met the filing thresholds (wages/employee count), file Form 940 even if calculations show no tax due (for example, all your wages were exempt family employment). You’ll report $0 due.

Q: What happens if I file Form 940 late?
A: Yes, there is a penalty. The IRS can charge 5% of the unpaid FUTA tax per month (up to 25% total) for late filing, plus interest. Late payment or deposit can add additional penalties (ranging 2%–15%).

Q: Do independent contractors count for Form 940?
A: No. Payments to independent contractors are not wages and are not subject to FUTA. You only include employees on Form 940. (Be sure workers are properly classified; misclassification is a common issue.)

Q: If my business operates in multiple states, do I need to do anything extra on Form 940?
A: Yes. Check the box on line 1b (multi-state) and attach Schedule A. You’ll list each state and calculate any credit reductions applicable. This ensures you get full credit where allowed and pay the extra for loan-affected states.

Q: I sold my business mid-year – who files the Form 940?
A: Yes, you still need to file for the part of the year you owned the business (as a “predecessor”). The new owner (successor) will file for the remainder. There are boxes on the form for final return and successor info to fill in.