Glossary · Small business
Form 940
Form 940, the Employer’s Annual Federal Unemployment (FUTA) Tax Return, is the return on which an employer reports its federal unemployment tax each year.
Updated · Sources
FUTA tax, 2026
- 6.0%
- is the FUTA rate, charged on the first $7,000 you pay each employee in the year.
- 5.4%
- is the most you can take off as a credit for state unemployment tax paid in full and on time.
- $42
- is the most FUTA then costs per employee for the year, a net rate of 0.6%.
The credit is smaller in a credit reduction state. For 2025, it was cut by 1.2% in California and by 4.5% in the US Virgin Islands. The 2026 reductions are set after November 10, 2026.
Most employers owe FUTA if they paid $1,500 or more in wages in any calendar quarter, this year or last. Employing someone for part of a day in 20 different weeks of either year also counts. Household and farm employers have tests of their own. Charities exempt under Section 501(c)(3) owe no FUTA.
Only the employer pays FUTA, so nothing is withheld from employees’ pay. State unemployment tax paid after the Form 940 due date earns only 90% of the credit it would have earned.
FUTA is figured each quarter. Once the amount owed, plus any carryover, passes $500, you deposit it by the end of the month after the quarter. A smaller amount carries forward to the next quarter. In the fourth quarter, $500 or less can be paid with the return instead. The 2026 Form 940 is due February 1, 2027, or February 10 if every deposit was on time. FUTA never goes on Form 941.
Sources
- IRS, Instructions for Form 940 (2025)
- 26 U.S.C. § 3306, Definitions (FUTA employers and wages)
- IRS, Schedule A (Form 940) for 2025, Multi-State Employer and Credit Reduction Information
- IRS, Publication 15 (2026), Employer’s Tax Guide
Reviewed and updated September 2026. General information, not advice for your situation.