How to Fill Out Form 940 (2026): FUTA Tax Instructions

Form 940 is the annual return employers use to report federal unemployment tax (FUTA) on the first $7,000 of each employee's wages. If you paid employees $1,500 or more in any quarter, or had an employee in 20 or more weeks of the year, you file it. The 2026 return is due February 1, 2027, or February 10 if you deposited all FUTA tax on time.

The headline rate is 6.0%, but most employers pay just 0.6%, or $42 per employee, because state unemployment payments earn a credit of up to 5.4%.

What's new for 2026:

California faces an expected FUTA credit reduction of at least 1.5% for 2026 wages, possibly up to 5.3% if an additional add-on applies.
The final list of credit reduction states is announced after November 10, 2026.
The U.S. Virgin Islands repaid its federal unemployment loans in May 2026 and is expected to come off the list.
The FUTA rate and the $7,000 wage base are unchanged.
January 31, 2027 falls on a Sunday, so the 2026 return is due Monday, February 1.

Form 940 at a glance

Key fact	2026 tax year
Who files	Employers that paid $1,500 or more in wages in any quarter of 2025 or 2026, or had an employee in 20 or more weeks
Due date	February 1, 2027 (February 10 if all FUTA deposits were on time)
Taxable wages	First $7,000 per employee per year
Effective rate	0.6% ($42 per employee) with the full state credit
Deposits	Required once FUTA liability exceeds $500. Otherwise carry it forward or pay with the return
Credit reduction state for 2026	California expected. Final rate announced after November 10, 2026
Exempt employers	501(c)(3) nonprofits

Download Form 940

Do you need to file Form 940?

Your situation	File Form 940?
Paid $1,500 or more in wages in any quarter of 2025 or 2026	Yes
Had at least one employee, even part-time, in 20 or more weeks of either year	Yes
S corporation paying an owner a salary	Yes. Owner-employee wages count
Sole proprietor or partnership with no employees	No. Owners and partners are not employees
Only pay contractors	No
501(c)(3) nonprofit	No. Exempt from FUTA

Line-by-line instructions (key lines)

Line	What to enter	Where the number comes from in your books
1a / 1b	The state where you paid state unemployment tax, or check 1b if more than one (and complete Schedule A)	Your state unemployment registrations
2	Check if you paid wages in a credit reduction state (complete Schedule A)	Payroll records by work location
3: Total payments to employees	All wages paid in 2026	Payroll register annual summary. Should match the four 941s
4: Exempt payments	Payments not subject to FUTA, such as employer-paid health insurance and employer retirement contributions	Benefits expense accounts in the ledger
5: Payments over $7,000	Each employee's wages above the first $7,000, added together	Payroll register, year-to-date wages per employee
7: Taxable FUTA wages	Line 3 minus lines 4 and 5	Calculated
8: FUTA tax before adjustments	Line 7 × 0.6%	Calculated
9 / 10: Adjustments	Extra tax if some wages were excluded from state unemployment, or state tax was paid late	State unemployment tax filings and payment dates
11: Credit reduction	Extra tax for wages paid in a credit reduction state, from Schedule A	Payroll register by state
13: FUTA tax deposited	Total FUTA deposits for the year	EFTPS payment history
16: Quarterly liability	FUTA owed for each quarter, required if line 12 is over $500	Payroll register by quarter

Worked example: a 12-person agency in Texas

The agency had 10 full-time employees who each earned well over $7,000, and 2 part-timers who earned $4,000 each. Total 2026 payroll was $820,000, including $40,000 of employer-paid health insurance.

Line	Amount	Why
3: Total payments	$820,000	Annual payroll
4: Exempt payments	$40,000	Employer-paid health insurance
5: Payments over $7,000	$702,000	Everything above the first $7,000 for each full-timer
7: Taxable FUTA wages	$78,000	(10 × $7,000) + (2 × $4,000)
8: FUTA tax	$78,000 × 0.6% = $468	Full state credit, since Texas is not a credit reduction state

At $468, the agency's liability never passed $500, so it made no deposits and pays the full amount with the return. The same agency in California would add a credit reduction on line 11. At the expected minimum 1.5% rate, that is $78,000 × 1.5% = $1,170 more, for a total of $1,638.

Because most employees reach $7,000 early in the year, firms with more than about 11 employees typically owe most of their FUTA in Q1, with the first deposit due April 30.

Your Form 940 prep checklist

When	Task
Each quarter-end	Check whether cumulative FUTA liability is over $500. If so, deposit by the last day of the next month
Before December 31	Confirm all state unemployment tax for the year is paid on time. Late state payments reduce your federal credit
After November 10	Check the final Department of Labor credit reduction list if you have employees in California
First week of January	Pull annual payroll totals and exempt benefit payments from the ledger
Before filing	Match line 3 to the four 941s and line 13 to EFTPS history

Common mistakes to avoid

Treating 401(k) deferrals as exempt. Employee contributions to a 401(k) are still FUTA wages. Only certain employer-paid benefits belong on line 4.
Paying state unemployment late. The 5.4% credit assumes on-time state payments. Late payments shrink the credit and raise your FUTA bill.
Missing the credit reduction. Employers with California staff need Schedule A. The extra tax is part of the fourth-quarter liability, due by February 1.
Missing the Q1 deposit. Because FUTA wages are front-loaded, firms with a dozen or more employees often owe a deposit by April 30. Late deposits carry penalties.
Including partners as employees. Partner draws are not wages for FUTA. S-corp owner salaries are.

If you file late or get it wrong

Late filing and late deposits each carry penalties based on the unpaid tax, plus interest. To correct an error after filing, file an amended Form 940 and check the "Amended" box at the top of the form.

Nonprofit callout

501(c)(3) organizations are exempt from FUTA and do not file Form 940, even with large payrolls. They still deal with state unemployment, often with the option to reimburse the state for claims instead of paying quarterly tax. Other tax-exempt organizations, such as 501(c)(6) trade associations, are not exempt and do file. Confirm your organization's status with your CPA before relying on these notes.

Frequently asked questions

Is Form 940 the same as state unemployment tax?

No. Form 940 covers federal unemployment tax paid to the IRS. State unemployment tax is filed and paid separately with your state, usually quarterly. The two are linked because on-time state payments reduce what you owe on Form 940.

Do I need to file Form 940 if I only had one part-time employee?

Probably. The test is $1,500 in wages in any quarter, or one employee in 20 or more weeks of the year. Even a single part-time employee working most of the year usually meets it.

Why is my FUTA tax higher in California?

California has carried outstanding federal loans for its unemployment fund for several years. That triggers a credit reduction, which raises the effective FUTA rate on California wages until the loans are repaid.

Related reading:

AI-powered. Experts in the Loop. Numetix tracks FUTA wages per employee and reconciles deposits to EFTPS every month, so you know when a deposit is due and your Form 940 ties to the 941s before you file. Explore Numetix bookkeeping.

Always consult your CPA for advice specific to your situation and your payroll filings.

This article is for informational purposes only and does not constitute formal legal or tax advice. Always consult a qualified tax professional regarding your specific situation.