What is Form 940?

Form 940 is the annual federal tax return reporting FUTA (Federal Unemployment Tax Act) liability, calculating unemployment tax owed based on wages paid and SUTA credits claimed. For professional service firms with employees, Form 940 is filed annually by January 31 of the year following the tax year.

Key characteristics

• Annual FUTA tax return

• Reports unemployment tax

• Due January 31 of the following year

• Calculates SUTA credit

• Reconciles deposits to liability

• Required for employers

Why it matters for professional service firms

Form 940 reconciles FUTA deposits to actual liability. Errors in SUTA credits or wage calculations create discrepancies. Professional service firms should ensure that Form 940 accurately reflects wages paid and state credits claimed, and that it reconciles with quarterly deposits.

Real-world example

Brian's firm paid $420,000 in wages to 8 employees. Form 940 calculation: taxable wages $56,000 (8 employees times $7,000 wage base), gross FUTA $3,360 (6% rate), SUTA credit $3,024 (5.4%), net FUTA $336. Deposited $336 during the year. Form 940 reconciled deposits to calculated liability with zero balance due.