IRS Form 940 Instructions for
2023 & 2022

1. What’s new in IRS Form 940 Instructions for 2023?

A credit reduction state is one that borrowed from the federal government to fund their state unemployment benefits. The credit reduction rate for California, Connecticut, and New York is 0.9% and for the U.S. Virgin Islands is 4.2%.

Visit https://www.taxbandits.com/payroll-forms/features/form-940-schedule-a/ to learn more about
Form 940 Schedule A.

2. Part 1: Information about the return filed

In Part 1 of 940 Form, you are required to enter some basic information about your return. If there is a line that does not apply to your business, leave it blank.

• On Line 1a, you should indicate if you are an employer that only paid unemployment taxes in one state. Do so by entering the abbreviation for this state.
• On Line 1b, check the box if you paid unemployment taxes in more than one state. This indicates that your business is a multi-state employer, required to complete and attach 940 Schedule R.
• On Line 2, indicateindicate if you paid wages in a state that is considered a credit reduction state. For the 2024 tax year, the credit reduction states are California, Connecticut, New York, and the US Virgin Islands. For the 2023 tax year, the credit reduction states were California, New York, and the US Virgin Islands.

3. Part 2: Determining the FUTA tax before adjustments

In Part 2 of Form 940, you will be determining your FUTA tax before adjustments. Again, if there is a line that doesn't apply to your business, skip it.

• On Line 3, enter the total payments to all of your employees, even if not all of the payments aren’t subject to FUTA taxes.
• On Line 4, enter any payments that are exempt from FUTA taxes. For example, the payment doesn’t fit the definition of wages. Check each of these that apply:
  • Fringe benefits (4a)
  • Group-term life insurance (4b)
  • Retirement/Pension (4c)
  • Dependent care (4d)
  • Other (4e)
• On Line 5, enter any payments made to an employee over $7,000. The FUTA wage base is $7,000, this means that any amount beyond the wage base is not subject to FUTA taxes. Subtract any payments that were exempt from FUTA taxes from this amount.
• On Line 6, enter the subtotal. Add the amounts on Lines 4 and 5 and enter this total on Line 6.
• Line 7, is the total taxable FUTA wages. To get this amount, subtract Line 6 from Line 3.
• Line 8, is the FUTA tax before adjustments, multiply Line 7 by 0.006 to get this amount.

4. Part 3: Calculating the adjustments

In Part 3, you will be determining your adjustments. Only complete the lines that apply to your business.

• Complete Line 9, if ALL of the taxable FUTA wages were excluded from state unemployment taxes. To do this, multiply line 7 by 0.054 and enter this amount here. Then, you can
  proceed to Part 4.
• Complete Line 10, is SOME of the taxable FUTA wages were excluded from state unemployment taxes. You should also complete Line 9 if you paid any of your state unemployment taxes late.
• If credit reduction applies, complete Line 11 as well. Enter the total from Schedule A here.

5. Part 4: Determine the FUTA tax and the balance due or overpayment

In Part 4, you will be determining your FUTA tax balance due and if you overpaid.

• In Line 12, take the sum of lines 8, 9, 10, 11. Please note that if the amount on Line 9 is greater than zero, Lines 10 and 11 must be zero.
• Enter your FUTA deposits for the year on Line 13. Include any overpayments applied from the previous year.
• On Line 14, you will calculate the balance due. If the amount on Line 13 is smaller than the amount on Line 12, enter the difference.
• If Line 13 is greater than Line 12, enter the difference on Line 15, this is the overpayment. Check the box to apply the overpayment to a later return, or to receive a refund.

6. Part 5: Report FUTA tax liability if after adjustment is more than $500

You only need to complete Part 5 of Form 940 if the amount you entered on Line 12 is $500 or greater, otherwise skip ahead to Part 6.

• In Line 16, enter your FUTA liability (not deposits) for each quarter
  • 16a (Q1)
  • 16b (Q2)
  • 16c (Q3)
  • 16d (Q4)
  • Other (4e)
• In Line 17, enter the total FUTA liability for the year by adding up the amount from each quarter.

With these Form 940 instructions you can easily file form 940.

7. Third-party designee and Signing information

Congratulations for making it all the way to Part 6! This means all the hard work is out of the way, now it’s time to e-sign Form 940.

With TaxBandits you can use your IRS-assigned Online Signature PIN, or alternatively, you can use
Form 8453-EMP. In the meantime, be sure to apply for an Online Signature PIN through TaxBandits, this is a free service that we offer.

8. What is the mailing address for Form 940?

Although e-filing is the IRS-preferred method of filing Form 940, they will accept paper copies. If you plan to file a paper copy, choose the address below that applies to your business location.

Click here to learn more about Form 940 mailing address.

E-filing Form 940 with TaxBandits is easy and efficient. We streamline the e-filing process by including auto calculation, error checks against the IRS business rules, and necessary worksheets.

9. Choose TaxBandits to file Form 940

TaxBandits makes the e-filing of Form 940 easier with these 940 instructions. File with TaxBandits before the due date and send it to the IRS.

Follow the below simple steps to e-file form 940 for Tax Year 2023.

• Create a free TaxBandits account!
• Choose "Form 940" and enter the details.
• Review and Transmit Form 940 to the IRS.