Form 940 reports annual federal unemployment tax, or FUTA. FUTA is an employer tax and must not be withheld from employee wages. Prepare the return using employee-level taxable wage calculations, state unemployment records, annual adjustments, and actual deposits rather than a simple percentage of total company payroll.
What does Form 940 report?
The IRS 940 overview distinguishes federal unemployment tax from other payroll taxes. Determine whether the employer meets the applicable filing conditions and whether special rules apply.
FUTA and state unemployment are related but separate systems. State tax timing, covered wages, and credit-reduction rules can affect the federal result. Do not assume a familiar net FUTA rate is the final rate for every employer or every reporting year.
Which payroll and state records are needed?
- Employer identity and reporting year.
- Employee-by-employee payments and FUTA exclusions.
- Amounts above the applicable employee wage base.
- State unemployment coverage and actual payment records.
- Applicable credit-reduction and adjustment calculations.
- Quarterly liabilities, deposits, and applied overpayments where relevant.
The Form 940 instructions explain the wage-base and state-credit framework. Keep multi-state records separate enough to support any required Schedule A.
Why is the wage base an employee-level check?
Fictional 2025 base example: assume two employees each received $10,000 of fully FUTA-covered pay and the applicable $7,000 per-employee base applies. Taxable base is $7,000 + $7,000 = $14,000 before the tax calculation, not one $7,000 limit for the whole employer. This example assumes no excluded payments.
The federal tax then depends on the permitted rate, credits, and adjustments. Do not treat the $6,000 above those combined bases as a deduction from employee take-home pay.
What does the Form 940 product prepare?
The reviewed 940 builder currently prepares the final 2025 packet, including the annual return and original payment-voucher page. It supports annual wage and tax totals, applicable adjustment entry, and liability reconciliation.
It does not file, make deposits, or generate separately required schedules and worksheets. State-credit adjustments and credit-reduction amounts need actual supporting calculations. A voucher is not proof that tax was paid, and the document fee does not satisfy an employer tax liability.
How should you finish the reconciliation?
Compare taxable bases with the employee ledger, verify the state-related treatment, and distinguish quarterly liability from deposits. Investigate differences before signing rather than entering an unexplained amount to balance the return.
Our FUTA on a pay stub guide explains the employer/employee distinction. The state unemployment guide explains why a similarly named state entry needs its own review. Retain the source worksheets and actual submission evidence.
Common questions
Can an employer deduct FUTA from employees?
No. FUTA is the employer’s tax. Do not reduce employee net pay to collect it.
Does annual filing remove interim deposit obligations?
No. Determine and meet the applicable deposit requirements separately.
Can I use a 2025 PDF for 2026 by relabeling it?
No. Use the appropriate final edition and year-specific rules.
Official blank forms and instructions are available from the IRS. The linked builder is an optional document-preparation service; use the applicable official instructions to complete any required signing, delivery, and filing.