Why Does Form 940 Not Match My Payroll? (w/Examples) + FAQs

Form 940 is the federal Unemployment Tax Act (FUTA) form that businesses file once a year to report wages paid to employees. Your payroll system tracks the real-time paychecks, deductions, and withholdings, but Form 940 captures only specific wage information needed for unemployment insurance purposes.

These two documents serve different functions, so their totals almost never line up perfectly. According to the IRS employment tax guide, roughly 30% of businesses file Form 940 amendments because they discover mismatches after submitting their initial return.

The gap between your payroll records and Form 940 exists by design. Your payroll system includes gross wages, voluntary deductions, tax withholdings, benefits, and reimbursements, but Form 940 only requires you to report taxable wages for unemployment insurance. This means you must exclude certain types of income and wages above the wage base limit, which your payroll system may track differently. Understanding what counts and what doesn’t is the first step to fixing mismatches.

What You’ll Learn From This Article

🔍 Why Form 940 totals differ from your payroll system and which wages actually count
💰 The exact wage limits, exclusions, and special situations that cause mismatches
📋 Real-world scenarios showing how different actions lead to Form 940 errors
⚠️ Common mistakes that trigger IRS notices and how to avoid them
✅ Step-by-step guidance for identifying, fixing, and preventing Form 940 mismatches

The Core Difference: What Form 940 Captures Versus What Payroll Shows

Form 940 reports only federally taxable wages for unemployment insurance. Your payroll system tracks all compensation, but not all compensation belongs on Form 940. The federal unemployment tax rules state that wages over $7,000 per employee, per year do not incur FUTA tax, so they should not appear on Form 940 as taxable wages.

Your payroll system might show an employee earned $50,000 annually, but only the first $7,000 counts toward FUTA tax on Form 940. Many business owners assume their total payroll and Form 940 wages should match, but this creates a mismatch immediately. Beyond the wage base limit, certain types of income are completely excluded from FUTA wages, including bonuses treated as supplemental income in some cases, dependent care assistance, and certain health insurance premiums paid by the employer.

Timing differences also cause mismatches. Your payroll system records wages when you pay them, but Form 940 asks for wages paid during the calendar year. If you pay employees on the last day of December for work performed in December, and employees are on a weekly or bi-weekly schedule, those final paychecks belong on Form 940 for that year. However, if you make a payment in January for accrued but unpaid wages from the prior year, that payment belongs on the prior year’s Form 940, not the current year’s.

Understanding the $7,000 Wage Base Limit

The federal wage base for FUTA tax is $7,000 per employee, per calendar year. Once an employee’s wages reach $7,000 in a calendar year, no additional wages for that employee are subject to FUTA tax for that year. Many businesses make the mistake of including wages above $7,000 on Form 940, creating an immediate and significant mismatch.

Your payroll system likely tracks cumulative wages for all employees throughout the year. If an employee earns $15,000 annually, your payroll system correctly shows $15,000 in total compensation. However, Form 940 should only include $7,000 of that employee’s wages. The remaining $8,000 is not subject to FUTA tax and must be excluded from the Form 940 calculation.

Some payroll software automatically limits wages to the $7,000 threshold, while others require manual calculation. If your system does not automatically cap wages at $7,000, you must manually review each employee’s earnings and exclude amounts over the limit. This is one of the most common sources of Form 940 mismatches because business owners often overlook this step entirely.

State unemployment tax (SUTA) often uses a different wage base than the federal $7,000 limit. Many states use a $7,000 base, but some states use higher limits like $8,000, $9,000, $10,000, or more. This means an employee’s state unemployment tax wages might differ significantly from their FUTA wages. If you report state wages on Form 940 instead of federal wages, your numbers will not match what the IRS expects.

Income and Wages That Do Not Count on Form 940

Not all compensation paid to workers counts as FUTA wages. According to the IRS, certain types of payments are excluded from FUTA wages entirely, and understanding these exclusions is essential for accurate Form 940 reporting.

Meals and lodging provided to employees for the employer’s convenience do not count as FUTA wages. If your company provides free meals at the office or housing for employees who work on-site, those benefits should not appear on Form 940. Similarly, achievement awards like trophies or certificates of less than $400 in value are excluded, as are certain retirement plan contributions and health insurance premiums paid by the employer on behalf of the employee.

Vacation pay creates confusion because it counts as FUTA wages when an employee actually receives payment, but many business owners think it should be excluded. If you pay an employee for unused vacation when they leave the company, that payment counts as wages for the year it is paid, not the year it was earned. Severance pay follows the same rule—it counts as FUTA wages in the year the employee receives it.

Dependent care assistance programs that qualify under tax code provisions are excluded from FUTA wages up to certain limits. If you offer employees a dependent care flexible spending account (FSA) or provide direct childcare services, those benefits may be excluded. Adoption assistance provided by the employer is also excluded up to $5,940 in tax year 2024. Certain payments to part-time or temporary workers may be excluded if they meet specific criteria, though this is less common and requires careful documentation.

Bonuses and commissions that are paid as regular wages count fully on Form 940, but supplemental bonuses or commissions paid separately on different pay schedules sometimes create confusion. If your business pays a regular bonus at the end of the year in December, it counts as wages for that calendar year. If you pay a bonus in January for performance in the prior year, it belongs on the prior year’s Form 940, which may have already been filed.

Identifying Specific Sources of Mismatches: Wage Classification Problems

Many Form 940 mismatches stem from how wages are classified within your payroll system. If you classify certain wages incorrectly, they either appear on Form 940 when they shouldn’t or are excluded when they should be included.

Regular hourly wages and salaries count fully toward FUTA wages, but only up to the $7,000 limit per employee. If your payroll system tracks these correctly but does not cap them at $7,000 per employee, your Form 940 total will be too high. You must ensure your system removes or clearly marks amounts over $7,000 so they do not transfer to Form 940.

Overtime and shift differentials are wages and count fully toward FUTA tax and the $7,000 limit. Many business owners believe overtime should be handled differently, but overtime pay is regular wages for FUTA purposes. If you exclude overtime from your Form 940 calculation, your form will show incomplete wage data, triggering IRS inquiries.

Hazard pay, on-call pay, and standby pay all count as wages for FUTA purposes. Some employers mistakenly exclude these thinking they are benefits rather than wages. If your employees receive extra pay for working dangerous conditions or being available on-call, that extra pay must be included in your FUTA wage calculation up to the $7,000 threshold per employee.

Sick leave and paid time off (PTO) count as wages when paid to the employee, regardless of whether the employee actually worked during that time. If your payroll system pays out accrued sick leave as a lump sum when an employee leaves, that payout counts as wages. The key is when the payment is made, not when the time was earned or used.

Jury duty pay and military service pay that the employer provides count as wages for FUTA purposes. If you supplement an employee’s regular pay because they are serving on jury duty or in the military, that supplemental pay is included in FUTA wages. Some business owners exclude these assuming they are special benefits, but they are taxable wages for unemployment insurance.

Wage Classification Problems: Misclassifying Employees as Independent Contractors

A significant source of Form 940 mismatches involves misclassifying workers. If you pay someone as an independent contractor when they should be classified as an employee, their wages do not appear on Form 940 even though they should.

Conversely, if you treat someone as an employee and pay payroll taxes on their wages, but they are actually an independent contractor, you will report wages on Form 940 that should not be there. The IRS has specific guidelines for determining worker classification based on behavioral control, financial control, and the nature of the relationship.

Workers you have significant control over—who must work at your location, use your equipment, and follow your procedures—are typically employees. Independent contractors generally work for multiple clients, provide their own equipment, set their own hours, and control how the work gets done. If you misclassify employees as contractors, Form 940 will show lower wages than your payroll system, causing a mismatch that can trigger an audit.

The Impact of Multi-State Employment on Form 940

When your business employs workers in multiple states, Form 940 reporting becomes more complex because each state has different unemployment tax rules. Form 940 is federal, so it reports only federal FUTA wages, but you must still file state unemployment tax returns (typically Form UC1 or equivalent) for each state where you have employees.

If an employee works for you in multiple states during the same year—for example, they were in Colorado for six months and then transferred to California—their wages count toward the $7,000 federal limit combined across all states. You cannot claim that $7,000 of wages in Colorado and $7,000 of different wages in California as separate FUTA wages. The limit applies per employee, per year, regardless of how many states they work in.

Your payroll system must track where each employee worked and when, especially if workers transfer between states mid-year. If your system reports total wages by state separately and you accidentally include wages from multiple states per employee on Form 940, your total will be inflated. Many payroll services can create reports showing wages by state and by employee, which helps you verify that you are not double-counting.

Scenario 1: The Wage Base Limit Problem

Maria’s Scenario: Maria owns a small tech company and pays three employees: Alex earns $45,000 annually, Jordan earns $28,000 annually, and Sam earns $18,000 annually. Maria’s payroll system shows total wages of $91,000. When Maria files Form 940, she includes all $91,000 as taxable FUTA wages.

Maria’s mistake is treating payroll total wages as the same as FUTA taxable wages. The $7,000 federal wage base limit means each employee contributes only $7,000 of their earnings to the FUTA calculation, regardless of how much they earn. Maria should have calculated: Alex contributes $7,000, Jordan contributes $7,000, Sam contributes $7,000, for a total of $21,000 in taxable FUTA wages. Identifying this mismatch requires reviewing each employee’s cumulative earnings and capping them at $7,000.

Scenario 2: The Timing and Accrual Discrepancy

James’s Scenario: James owns a construction company with employees paid on bi-weekly cycles. In late December, James pays employees for work completed through December 31, but he also pays out all accrued but unused vacation time as a lump sum in that final December paycheck. His payroll system for 2025 shows these December wages totaling $35,000. James includes all $35,000 on his 2025 Form 940.

James’s error involves timing. Wages count on Form 940 for the year in which they are paid, but James paid vacation accrued over multiple years all in December 2025. He should have tracked how much vacation was earned in 2024 versus 2025, then reported only the 2025 earned portion on 2025 Form 940. The remaining accrued vacation should have been reported on 2024 Form 940 if it was earned in 2024 but paid in early 2025.

Additionally, James must ensure that no employee’s total wages exceed $7,000 on the 2025 Form 940. If employees reached their $7,000 limit earlier in the year, the vacation payout in December should not be included in the FUTA wage calculation, even though it appears in payroll as a December payment.

Scenario 3: The Multi-State and Classification Mismatch

Sofia’s Scenario: Sofia runs a consulting firm and employs five people. Three work as full-time employees in the office in New York, and two are classified as independent contractors who work remotely from California. Sofia’s payroll system shows $220,000 in total employee wages (the three New York employees) and $40,000 in contractor fees (the two California contractors, paid via 1099-NEC forms).

Sofia files Form 940 reporting all $220,000 in wages, but her accounting partner mentions that the two California workers might actually be employees, not contractors. After investigation, Sofia realizes the two California workers should indeed be classified as employees, bringing the total employee wages to $260,000.

Sofia’s mismatch has two parts: first, she classified workers incorrectly, which meant $40,000 of wages never appeared on Form 940. Second, if the workers truly should have been employees, Sofia failed to withhold federal income tax, Social Security tax, and Medicare tax, and she did not pay her share of SUTA and FUTA taxes. Form 940 for the current year would need to be amended to include the $40,000 (or the portion subject to the $7,000 limit if the workers earned more than $7,000 each). Prior years would also require amended returns and back tax payments.

Breaking Down Form 940 Line by Line: What Each Piece Means

Form 940 contains specific lines that map to different categories of wage and tax information. Understanding what each line captures helps you identify where mismatches occur.

Part 1: Identification and Basic Information. Lines 1a through 1c ask for your business name, address, and Employer Identification Number (EIN). Errors here do not cause wage mismatches, but they can cause your Form 940 to be rejected or associated with the wrong business account. Verify these details match your IRS records exactly.

Part 2: Determination of Liability. Line 2 asks if you are required to file Form 940 based on your total payroll and employee count. Most businesses with employees must file Form 940, but some agricultural employers, certain domestic employers, and businesses with specific structures (like nonprofits) have different rules. This line establishes whether Form 940 is required.

Part 3: Taxable Wages and FUTA Tax Before Credits. This is where wage mismatches appear most often. Line 3 asks for total payments made to employees during the year. This is where you report the gross wages you paid, including wages above the $7,000 threshold per employee. Your payroll system likely shows this figure, but it is not your FUTA taxable wages yet.

Line 5a asks for total payments made to each employee. You should reduce this amount by the amounts for each employee that exceed $7,000. Many payroll systems generate a line-by-line employee report showing cumulative wages throughout the year. Use this report to identify which employees exceeded $7,000 and by how much.

Line 5b then asks you to list taxable wages. This is where the $7,000 limit is applied. If you paid Employee A $50,000, their taxable wage for FUTA purposes is $7,000, not $50,000. You must subtract the excess amounts and report only $7,000 for Employee A on Line 5b.

Part 4: Adjusted Taxable Wages and Tax Due. Line 6 carries forward your taxable wages from Line 5b. Lines 7 through 10 apply credits and adjustments specific to your business (such as credits for state unemployment tax payments). Your FUTA tax calculation begins with your taxable wages, so errors in Lines 5 and 6 directly affect your tax liability.

Common Mistakes That Lead to Form 940 Mismatches

Mistake 1: Including wages above the $7,000 limit. This is the single most common error. Business owners transfer total payroll wages directly to Form 940 without removing the excess wages per employee. The consequence is overstating taxable wages and overpaying FUTA tax. To avoid this, calculate cumulative wages per employee throughout the year and remove all amounts over $7,000 before reporting on Form 940.

Mistake 2: Excluding accrued but paid wages. Some business owners assume that vacation, sick leave, or bonuses accrued in the prior year but paid in the current year should not appear on the current year’s Form 940. This is incorrect. Wages count on Form 940 in the year they are paid, not the year they are earned. The consequence is understating Form 940 wages, which can trigger an IRS notice. To avoid this, track the payment date of all wages, not the accrual date.

Mistake 3: Misclassifying workers as independent contractors. If workers should be employees but are treated as contractors, their wages never appear on Form 940 even though they should. The consequence is significant: you owe back FUTA tax, Social Security tax, Medicare tax, federal income tax withholding, and state employment taxes, plus penalties and interest. To avoid this, use the IRS worker classification guidelines to determine proper classification, or request an SS-8 determination from the IRS if uncertain.

Mistake 4: Double-counting multi-state wages. If an employee works in multiple states during one year, their wages count once toward the $7,000 federal limit, not once per state. Some payroll systems track wages by state separately, which can lead to accidentally including all of an employee’s wages in the federal calculation even though they exceeded $7,000 when all states are combined. The consequence is overstating Form 940 wages. To avoid this, verify that your payroll system combines wages across all states per employee before calculating the $7,000 limit.

Mistake 5: Including non-taxable payments as wages. Reimbursements, non-cash benefits, and certain employer-provided services should not appear on Form 940. If your payroll system includes mileage reimbursements, health insurance premiums, or other benefits as “wages,” they must be separated out before reporting on Form 940. The consequence is overstating taxable wages and overpaying FUTA tax.

Mistake 6: Failing to adjust for credits and state unemployment tax. Form 940 allows you to reduce your FUTA tax by claiming a credit for state unemployment tax you paid. If you do not claim this credit or claim it incorrectly, you overpay federal FUTA tax. The credit is typically 5.4%, which means your federal FUTA rate is 0.6% instead of 6%. To avoid this, carefully document all state unemployment tax payments and ensure they are properly reflected on Form 940 Part 4.

Mistake 7: Not reconciling Form 940 with Form 941. Form 941 (quarterly payroll tax return) reports total wages subject to federal income tax withholding and Social Security and Medicare tax. Form 940 reports only taxable FUTA wages (subject to the $7,000 limit). These forms should be different—Form 941 should show higher total wages. If Form 940 shows more wages than Form 941, you have made an error. The consequence is an IRS notice requesting explanation.

Mistake 8: Forgetting about amended returns. If you discover a mismatch after filing Form 940, you must file an amended return using Form 941-X if the error involved employee withholding, or by filing a corrected Form 940 if the error involved only FUTA tax. Many business owners fail to file amendments, hoping the error goes unnoticed. The consequence is penalties, interest, and audit scrutiny if the IRS discovers the error first.

Do’s and Don’ts for Accurate Form 940 Reporting

Pros and Cons: Different Approaches to Form 940 Reconciliation

Reconciling Form 940 to Form 941: The Critical Connection

Form 941 is the quarterly payroll tax return that reports total wages subject to federal income tax withholding, Social Security tax, and Medicare tax. Form 940 is the annual FUTA return that reports wages subject to the $7,000 federal wage base limit. These forms report different wage amounts for different purposes, but they must reconcile to show consistency across your payroll records.

Your total Form 941 wages for all four quarters combined should equal the total Form 941 wages you started with before applying the $7,000 FUTA limit. This means Form 941 wages should always be higher than Form 940 wages because Form 941 includes all wages without the $7,000 cap. If Form 940 shows higher wages than Form 941, you have made an error in one of the forms.

To reconcile, add up the total wages from all four quarterly Form 941s. This number should match the total wages you entered on Line 3 of Form 940 (total payments to all employees). Next, identify which employees exceeded $7,000 in cumulative wages during the year and subtract their excess wages. This gives you your Form 940 taxable wage total.

Many business owners use a reconciliation worksheet provided by the IRS to walk through this process step by step. The worksheet helps you compare your payroll records, Form 941 filings, and Form 940 filing to identify where discrepancies occur. If you use payroll software, the software typically generates this reconciliation automatically, but you should still review it to understand where differences exist.

If your Form 941 and Form 940 do not reconcile, investigate the following: Did an employee go above $7,000 in cumulative wages? Did you pay wages in one year that should have been reported in a prior year due to timing differences? Did you misclassify any workers? Did you include any non-taxable benefits in your wage calculation? Each of these issues creates a mismatch.

Special Situations: Agricultural Workers, Household Employees, and Exempt Organizations

Agricultural employers have different Form 940 filing requirements depending on how much they pay agricultural employees. If you paid less than $20,000 to agricultural employees in any quarter of the year, or employed fewer than 10 agricultural workers during any part of the year, you may not be required to file Form 940 for those workers. However, if you also employ non-agricultural workers, you must still file Form 940 for the non-agricultural workers. The IRS provides guidance specific to agricultural employment.

Household employees (nannies, housekeepers, caregivers, yard workers) are subject to FUTA tax if you pay any household employee $2,600 or more in a calendar year. Form 940 for household employees is filed differently than for business employees, often on Schedule H (Household Employment Taxes) attached to your individual tax return rather than as a separate Form 940. Many household employers are unaware of this requirement and fail to file, creating compliance issues.

Exempt organizations, including nonprofits, religious organizations, and educational institutions, sometimes have different employment tax filing requirements. Some exempt organizations are not subject to FUTA tax, while others are. The IRS Publication 15-B details which exempt organizations must file Form 940.

Student employees at educational institutions sometimes have different treatment. Students employed by the educational institution where they are enrolled may not be subject to FUTA tax in certain circumstances. However, if the student works for a business that is not the educational institution, they are treated like regular employees for FUTA purposes.

What to Do If You Discover a Mismatch After Filing

If you discover that your Form 940 contains an error after filing, you must file an amended return. The process depends on whether the error resulted in overpaying or underpaying FUTA tax, and whether you have already received a notice from the IRS.

For FUTA tax errors only (not involving federal income tax withholding or other tax types), you typically file an amended Form 940 or attach a corrected Form 940 to a letter explaining the error. Include copies of your payroll records, employee wage summaries, and calculations showing why the corrected amount is accurate. Mark the form clearly as “AMENDED RETURN” or “CORRECTED RETURN” to ensure the IRS applies it correctly.

If the error involved wages that should have been subject to federal income tax withholding or other taxes (not just FUTA), you may need to file Form 941-X for each quarter affected. Form 941-X addresses errors in federal income tax withholding, Social Security tax, and Medicare tax, in addition to FUTA considerations.

Calculate any overpaid FUTA tax and include a request for a refund or credit against future FUTA liability. Calculate any underpaid FUTA tax and include payment with your amended return. Include penalties and interest if applicable, though you may qualify for penalty relief if the error resulted from reasonable cause and you exercise due diligence in filing corrected returns promptly.

Mail amended returns to the IRS or e-file if your system supports amended filings. Keep copies of all corrected forms and supporting documentation for at least seven years, as the IRS can audit prior years if discrepancies are discovered.

Prevention: Systems and Processes to Avoid Future Mismatches

The best approach to preventing Form 940 mismatches is building accurate tracking into your payroll process from the start. Choose payroll software that includes Form 940 preparation features and automatically applies the $7,000 wage base limit. Software like ADP, Guidepoint, OnPay, and others flag wages exceeding the limit and prevent them from inflating your FUTA calculation.

Implement a quarterly reconciliation between your payroll records and your Form 941 filings. Each quarter, verify that the total wages on Form 941 match your payroll system’s total wages for that quarter. This catches timing errors and classification issues early, before they compound in your annual Form 940 filing.

Maintain separate tracking for employees approaching the $7,000 wage base limit. Once an employee reaches $7,000 in cumulative wages, verify that your payroll system stops calculating FUTA tax on their remaining wages for that year. Some employees may hit the limit in mid-year (common for higher-paid employees), while others may never reach it (common for part-time employees).

Document your employee classification decisions and keep records of any workers classified as independent contractors. If the IRS ever questions your classifications, you will need to demonstrate that you applied consistent criteria and made reasonable determinations. This documentation also helps you maintain consistency in future years.

Create a Form 940 checklist for each year that includes: verification of total payroll wages; identification of employees exceeding the $7,000 limit; reconciliation with quarterly Form 941 totals; verification of all exclusions and special payments; review of state unemployment tax credits; and confirmation that all employee names, Social Security numbers, and wage amounts are accurate. Use this same checklist each year to reduce the chance of repeating errors.

State-Specific Nuances: How States Differ From Federal Rules

While Form 940 is federal, your state may have different unemployment tax rules that affect how you record and categorize wages internally. Understanding state-specific differences helps prevent confusion when reconciling federal and state filings.

New York requires employers to report wages on Form NYS-45 (quarterly) and Form NYS-AU (annual) using the New York wage base limit, which is currently $11,800 per employee (as of 2024). This means a New York employee with $50,000 in annual wages contributes to state unemployment tax up to $11,800, while federal FUTA tax applies only to the first $7,000. Your payroll system must track both limits separately.

California uses a wage base of $7,000 for state unemployment insurance, matching the federal limit. However, California also requires employers to maintain employment training tax at an additional rate. California employees must be reported on Form DE 9C for quarterly payroll reporting, which shows both total wages and taxable wages under California’s rules.

Texas has no state unemployment tax for traditional employees, but the state requires federal FUTA reporting as normal. This simplifies Texas payroll for many employers, but employers must still file Form 940 federally.

Florida uses a wage base of $7,000 for state unemployment insurance. Like most states, Florida requires quarterly reporting on a state form in addition to federal Form 941. Florida also requires specific classification of employees by industry, which affects tax rates.

Many states have adopted the federal $7,000 wage base to align with federal FUTA rules, but some states—including California, Illinois, Massachusetts, New York, Pennsylvania, Washington, and others—use higher wage bases. This means certain employees will have different taxable wages under state rules than federal rules. Your Form 940 must use only the federal $7,000 limit, but your state filings use the state’s limit. Failing to distinguish between these limits causes mismatches.

Additionally, some states tax certain types of income that federal FUTA does not tax, or exclude certain types of income that federal FUTA taxes. For example, some states tax supplemental wages (bonuses, commissions paid separately) differently than regular wages. Consult your state’s unemployment tax agency website for specific rules affecting your business.

FAQs

Can Form 940 wages ever exceed Form 941 wages?

No. Form 941 includes all wages without the $7,000 limit, so it is always equal to or higher than Form 940 wages (which apply the $7,000 limit per employee). If Form 940 exceeds Form 941, an error exists in one of the returns.

Do I report bonus wages on Form 940 the same way as regular wages?

Yes. Bonuses paid in the calendar year count as wages on Form 940 in that year, subject to the $7,000 limit per employee. If an employee received $6,500 in regular wages and $1,000 in bonuses, only $7,000 counts on Form 940, not $7,500.

If an employee earns $12,000 annually, how much goes on Form 940?

Only $7,000. The employee’s entire $12,000 salary appears on Form 941 (quarterly filings), but only the first $7,000 is taxable for FUTA purposes on Form 940.

Are independent contractor payments reported on Form 940?

No. Independent contractors receive a 1099-NEC form, not a W-2, and their payments do not appear on Form 940 or Form 941. Only employee wages are reported.

Do vacation payouts count as wages for Form 940?

Yes. Vacation paid in the calendar year counts as wages that year, subject to the $7,000 limit. Timing of payment matters, not when vacation was earned.

What happens if I discover an error on Form 940 after the filing deadline?

File an amended return immediately. Use a corrected Form 940 or amended Form 940-X, include supporting documentation, and include payment or request refund for any tax difference. Penalties and interest may apply.

Does my state unemployment tax payment reduce my federal FUTA tax on Form 940?

Yes. You claim a credit on Form 940 Part 4 for state unemployment tax paid, typically reducing your federal rate from 6% to 0.6%.

If an employee moves to another state mid-year, do I count their wages twice?

No. The $7,000 federal wage base limit applies per employee per year, regardless of how many states they worked in. Combined wages from all states count toward the single $7,000 limit.

Are employer-provided health insurance premiums included in Form 940 wages?

No. Employer-paid health insurance premiums for employee coverage are excluded from FUTA wages (though the policy may have exceptions).

What is the deadline for filing Form 940?

January 31st of the following year is the deadline. The IRS extends to February 10th if you filed timely Form 941 returns for all quarters of the previous year.

Can I file Form 940 electronically?

Yes. You can e-file Form 940 through approved IRS e-file providers or payroll software that supports federal filing.

Do I need to file Form 940 if I had no employees for part of the year?

No, if you had no employees during all of a quarter, you may not be required to file. However, if you had even one employee for any part of the year, Form 940 filing is typically required.

Are tips reported on Form 940?

Yes. Tips that employees report to you must be included in their wages for FUTA tax purposes, subject to the $7,000 limit per employee.

If an employee was on unpaid leave for part of the year, do I count their wages?

Yes. You count only wages paid to the employee, not wages earned but not paid due to unpaid leave. Unpaid leave periods do not generate FUTA taxable wages.

Should I report severance pay on Form 940 if an employee is terminated mid-year?

Yes. Severance paid in the calendar year counts as wages, subject to the $7,000 limit. If the employee earned $6,500 in regular wages before termination and receives $2,000 severance, only $7,000 total is taxable on Form 940.