What is it?
IRS form 940 is a document that is required to be filed annually by businesses that hire and retain employees. Through this form, businesses report their annual federal unemployment taxes. These taxes do not get deducted from employee salaries. There are many state unemployment programs in the U.S. that together with the federal unemployment taxes, recompense workers who are no longer employed or have lost their jobs. Form 940 is furnished by employers to the Federal Reserve, reporting the amount of Federal Unemployment Tax (FUTA) that will be paid by them for their employees.
Who is it for?
Generally all business employers will pay FUTA taxes if they have at least one employee on at least one day in 20 different weeks in a year, or if they remunerate a sum exceeding $1,500 in salaries in any “calendar quarter” (or the 4 three-month periods) of the year. Household and agricultural employers will be governed by separate rules. Household employers will be liable to pay FUTA taxes if they pay more than $1,000 in total wages in any quarter. Whereas the latter will pay FUTA taxes on hired help only if they pay over $20,000 in wages in any quarter or if they have more than 10 farm workers on at least one day in 20 different weeks.
Who is not required to file?
An employer that does not hire and maintain a regular staff and has a trivial or irregular sum-total payroll is absolved from the liability to file Form 940 and pay taxes therein. Likewise, organizations referenced in section 501 (c)(3) as tax-exempt and employees of a state of a political subdivision offering services are not liable to pay FUTA tax either. Moreover, IRS also spares FUTA tax to services rendered by employees of a federally recognized Indian tribal government employer on the condition that the tribe conforms to the applicable state unemployment law.
When & how should it be filed?
Form 940 (FUTA) is filed annually, normally due by January 31st. A payment of full deposit of all FUTA withholdings due can be made earlier though. Business owners can file Form 940 either on paper or electronically.
Penalties & interest
In order to steer clear of unnecessary penalties and interests, businesses must make tax deposits within due dates, file correct returns and disburse the accurately calculated amount of tax to the IRS. The law imposes penalties for delayed deposits and filing unless businesses disclose realistic reasons that caused the delay. Additional penalties are charged for the following offenses:
i. failure to pay tax deliberately or on purpose
ii. failure to keep records and/or make returns
iii. filing fraudulent returns