Employer's Annual Federal Unemployment (FUTA) Tax Return

What's New for 2001?

Electronic filing of Form 940. Form 940 can now be filed electronically. See Magnetic Media and Electronic Reporting on page 3.

Third party designee. You can now allow an employee or paid preparer to resolve certain tax issues with the IRS. See Third party designee on page 4 for more information.

Items To Note

Electronic deposit requirement. You may be required to deposit Federal taxes, such as employment tax, excise tax, and corporate income taxes, electronically using the Electronic Federal Tax Payment System (EFTPS). See Electronic deposit requirement on page 3 for details.

State unemployment information. You must contact your state unemployment tax office to receive your state reporting number, state experience rate, and details about your state unemployment tax obligations.

Worksheet for computing the Part II, line 6 credit if state contributions were paid late. Filers who made contributions to their state unemployment fund after the due date for filing Form 940 should complete the worksheet provided in the instructions for Part II, line 6, on page 5, to compute the allowable credit. Do not report such contributions in Part II, line 3, column (i) or on line 3b. Any credit allowed for such state contributions will appear on line 6.

Photographs of Missing Children

The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in instructions on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

Purpose of Form

Use Form 940 (or 940-EZ) to report your annual Federal Unemployment Tax Act (FUTA) tax. FUTA tax, together with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both Federal and state unemployment taxes. Only the employer pays FUTA tax. Do not collect or deduct it from your employees' wages. The tax applies to the first $7,000 you pay each employee in a year after subtracting any exempt payments. The $7,000 amount is the Federal wage base. Your state wage base may be different.

Form 940-EZ, Employer's Annual Federal Unemployment (FUTA) Tax Return, is a simpler version of Form 940. You may use it instead of Form 940 to report your annual FUTA tax if -

1. You paid unemployment contributions to only one state,
2. You paid all state unemployment contributions by January 31, 2002 (February 11, 2002, if you deposited all FUTA tax when due), and
3. All wages that were taxable for FUTA tax were also taxable for your state's unemployment tax. If, for example, you paid wages to corporate officers (these wages are taxable for FUTA tax) in a state that exempts corporate officers' wages from its unemployment tax, you cannot use Form 940-EZ.

A successor employer claiming a credit for state unemployment contributions paid by the prior employer must file Form 940.

When To File

File Form 940 for 2001 by January 31, 2002. However, if you deposited all FUTA tax when due, you may file on or before February 11, 2002. Your return will be considered timely filed if it is properly addressed and mailed First Class or sent by an IRS designated delivery service by the due date. See Circular E, Employer's Tax Guide
(Pub. 15), for a list of designated delivery services. Also see Where To File on page 2.

Private delivery services cannot deliver items to P.O. boxes.

Who Must File

Except as noted below, you must file Form 940 if Test 1 or Test 2 applies.

Test 1. You paid wages of $1,500 or more in any calendar quarter in 2000 or 2001.

Test 2. You had one or more employees for at least some part of a day in any 20 or more different weeks in 2000 or 20 or more different weeks in 2001.

Count all regular, temporary, and part-time employees. A partnership should not count its partners. If a business changes hands during the year, each employer who meets Test 1 or 2 must file. For purposes of Test 1 or Test 2 only, do not include wages paid by the prior (or subsequent) employer. But see Successor employer on page 5.

Household employers. File a FUTA tax return only if you paid total cash wages of $1,000 or more (for all household employees) in any calendar quarter in 2000 or 2001 for household work in a private home, local college club, or local chapter of a college fraternity or sorority. Individuals, estates, and trusts that owe FUTA tax for household work in a private home, in most cases, must file Schedule H (Form 1040), Household Employment Taxes, instead of Form 940 (or 940-EZ). See the Instructions for Household Employers.

In some cases, such as when you employ both household employees and other employees, you may choose to report social security, Medicare, and withheld Federal income taxes for your household employee(s) on Form 941, Employer's Quarterly Federal Tax Return, or Form 943, Employer's Annual Tax Return for Agricultural Employees, instead of on Schedule H. If you choose to report on Form 941 or 943, you must use Form 940 (or 940-EZ) to report FUTA tax.

Agricultural employers. File a FUTA tax return if either 1 or 2 below applies:

1. You paid cash wages of $20,000 or more to farmworkers during any calendar quarter in 2000 or 2001 or
2. You employed 10 or more farmworkers during at least some part of a day (whether or not at the same time) during any 20 or more different weeks in 2000 or 20 or more different weeks in 2001.

Count wages paid to aliens admitted on a temporary basis to the United States to perform farmwork, also known as workers with H-2(A) visas, to see if you meet either 1 or 2 above. However, wages paid to H-2(A) visa workers are not subject to FUTA tax.

Indian tribal governments. Services rendered to a federally-recognized Indian tribal government (including any subdivision, subsidiary, or wholly-owned business enterprise) after December 20, 2000 are exempt from FUTA tax (and no Form 940 or 940-EZ for 2001 is required), subject to the tribe's compliance with applicable state law. For procedures on amending a 2000 Form 940 or 940-EZ, see Announcement 2001-16, I.R.B. 2001-8, February 20, 2001. You can find Announcement 2001-16 on page 715 of Internal Revenue Bulletin 2001-8 at www.irs.gov. Also see code section 3309(d).

Nonprofit organizations. Religious, educational, charitable, etc., organizations described in section 501(c)(3) and exempt from tax under section 501(a) are not subject to FUTA tax and are not required to file.

State and local government employers. State or local government employers are not subject to FUTA tax and are not required to file.

Amended Returns

Use a new Form 940 to amend a previously filed Form 940. Check the Amended Return box above Part I. Enter all amounts that should have been on the original return, and sign the form. Attach an explanation of the reasons for the amended return. For example, you are filing to claim credit for contributions paid to your state unemployment fund after the due date of Form 940. File the amended return with the Internal Revenue Service Center where you filed the original return. Do not mail an amended Form 940 (even if it includes a payment) to a P.O. box location.

If you were required to file Form 940 but filed Form 940-EZ instead and you must correct an error, file the amended return on Form 940.

If you are filing an amended return after June 30 to claim contributions to your state's unemployment fund that you paid after the due date of Form 940, attach a copy of the certification from the state. This will expedite the processing of the amended return.

Where To File

In the list below, find the location where your legal residence, principal place of business, office, or agency is located. Send your return to the Internal Revenue Service at the address listed for your location. No street address is needed.

Note: Where you file depends on whether or not you are including a payment.

Credit for Contributions Paid
to a State Fund

You get a credit for amounts you pay to a state (including the District of Columbia, Puerto Rico, and the U.S. Virgin Islands) unemployment fund by January 31, 2002 (or February 11, 2002, if that is your Form 940 due date). Your FUTA tax will be higher if you do not pay the state contributions timely. See the Part II, line 6 instructions on page 5 if you did not pay state contributions by the due date of Form 940.

Contributions are payments that a state requires an employer to make to its unemployment fund for the payment of unemployment benefits. However, contributions do not include:

• Any payments deducted or deductible from your employees' pay.
• Penalties, interest, or special administrative taxes not included in the contribution rate the state assigned to you.
• Voluntary contributions you paid to get a lower assigned rate.

Additional credit. You may receive an additional credit if you have a state experience rate lower than 5.4% (.054). This applies even if your rate is different during the year. This additional credit is the difference between your actual state payments and the amount you would have been required to pay at 5.4%.

The total credit allowable may not be more than 5.4% of the total taxable FUTA wages.

Special credit for successor employers. A successor employer is an employer who received a unit of another employer's trade or business or all or most of the property used in the trade or business of another employer. Immediately after the acquisition, the successor employer must employ one or more individuals who were employed by the previous owner.

You may be eligible for a credit based on the state unemployment contributions paid by the previous employer. You may claim these credits if you are a successor employer and acquired a business in 2001 from a previous employer who was not required to file Form 940 (or 940-EZ) for 2001. If you are eligible to take this credit, you must file Form 940; you may not use Form 940-EZ. See section 3302(e). Enter in Part II, line 3, columns (a) through (i), the information of the previous employer as if you paid the amounts.

If the previous employer was required to file Form 940 (or 940-EZ), see successor employer on page 5.

Depositing FUTA Tax

When to deposit. Although Form 940 covers a calendar year, you may have to make deposits of the tax before filing the return. Generally, deposit FUTA tax quarterly if your FUTA tax exceeds $100. Determine your FUTA tax for each of the first three quarters by multiplying by .008 that part of the first $7,000 of each employee's annual wages you paid during the quarter. If any part of the amounts paid is exempt from state unemployment tax, you may be required to deposit an amount greater than that determined using the .008 rate. For example, in certain states, wages paid to corporate officers, certain payments of sick pay by unions, and certain fringe benefits are exempt from state unemployment tax.

If your FUTA tax for any of the first three quarters of 2001 (plus any undeposited amount of $100 or less from any earlier quarter) is over $100, deposit it by the last day of the first month after the end of the quarter. If it is $100 or less, carry it to the next quarter; a deposit is not required. If your FUTA tax for the fourth quarter (plus any undeposited amount from any earlier quarter) is over $100, deposit the entire amount by January 31, 2002. If it is $100 or less, you can either make a deposit or pay it with your Form 940 by January 31. (If you deposit it by January 31, you may file Form 940 by February 11, 2002.)

The deposit due dates are shown in the following chart:

If any deposit due date falls on a Saturday, Sunday, or legal holiday, you may deposit on the next business day.

How to deposit. If you are not required to use EFTPS (see Electronic deposit requirement below), use Form 8109, Federal Tax Deposit Coupon, when you make each tax deposit. The IRS will send you a book of deposit coupons when you apply for an employer identification number (EIN). Follow the instructions in the coupon book. If you do not have Form 8109, see section 11 in Circular E.

Make your deposits with an authorized financial institution (e.g., a commercial bank that is qualified to accept Federal tax deposits). To avoid a possible penalty, do not mail deposits directly to the IRS. Records of your deposits will be sent to the IRS for crediting to your business accounts.

Electronic deposit requirement. You must make electronic deposits of all depository taxes (such as employment tax, excise tax, and corporate income tax) using the Electronic Federal Tax Payment System (EFTPS) in 2002 if:

• The total deposits of such taxes in 2000 were more than $200,000 or
• You were required to use EFTPS in 2001.

If you are required to use EFTPS and fail to do so, you may be subject to a 10% penalty. If you are not required to use EFTPS, you may participate voluntarily. To enroll in or get more information about EFTPS, call 1-800-555-4477 or 1-800-945-8400.

See section 11 in Circular E for more information.

For deposits made by EFTPS to be on time, you must initiate the transaction at least one business day before the date the deposit is due.

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