Form 940 Instructions 2026: FUTA Line by Line, FUTA vs SUTA vs FICA, and Credit Reduction States

Form 940, the Employer's Annual Federal Unemployment (FUTA) Tax Return, reports a tax of 6.0% on the first $7,000 of wages you pay each employee in a calendar year, reduced by a credit of up to 5.4% for state unemployment tax paid on time, so most employers pay 0.6%, or $42 per employee at most. Form 940 for 2026 is due February 1, 2027 (January 31 is a Sunday), or February 10, 2027 if every FUTA deposit during the year was on time. Only the employer pays FUTA; nothing is withheld from employees. This guide follows the 2025 revision of Form 940 and its instructions, the current version; the 2026 form is expected in late 2026, after the Department of Labor finalizes credit reduction states on November 10.

Key numbers for Form 940:

Item	Figure	Source
FUTA rate	6.0% of the first $7,000 paid to each employee per year	IRC §3301, §3306(b)(1); Instructions for Form 940
Maximum state credit	5.4%, leaving 0.6% ($42 per employee) when state unemployment tax is paid by the Form 940 due date	IRC §3302; Instructions for Form 940
Credit for late state tax	90% of what timely payment would have earned (worksheet line 5d, × 0.900)	IRC §3302(a)(3); Instructions for Form 940
Who must file	$1,500 or more in wages in any calendar quarter, or one or more employees in 20 or more different weeks, in the current or prior year	IRC §3306(a); Instructions for Form 940
Household employers	$1,000 or more in cash wages in any quarter; usually reported on Schedule H instead	Instructions for Form 940
Quarterly deposit trigger	Cumulative FUTA over $500; deposit by the last day of the month after the quarter	Treas. Reg. §31.6302(c)-3; Instructions for Form 940
2026 deposit dates	April 30, July 31, November 2, 2026 (October 31 is a Saturday), February 1, 2027	Instructions for Form 940, shifted to the 2026 calendar
Credit reduction on the 2025 Form 940	California 1.2%; U.S. Virgin Islands 4.5%	Schedule A (Form 940) for 2025
Potential 2026 credit reduction	California 1.5% (plus a possible add-on), U.S. Virgin Islands 4.8%; final after November 10, 2026	U.S. Department of Labor, potential 2026 list (January 2026)

Form 940 FUTA reference card: 6.0% on first $7,000 per employee, 5.4% credit leaves 0.6% or $42 maximum, $1,500 quarter or 20 weeks filing test, $500 deposit trigger, deposits April 30, July 31, November 2, 2026 and February 1, 2027, credit reduction California 1.2% and Virgin Islands 4.5% for 2025

Save this cheat sheet — key numbers in one image.

Who Must File Form 940?

You must file Form 940 for 2026 if either test is met in 2025 or 2026: you paid wages of $1,500 or more in any calendar quarter, or you had one or more employees for some part of a day in 20 or more different weeks. Count full-time, part-time, and temporary employees, not partners. The tests come from IRC §3306(a), and because they look at the preceding year too, a business that met one in 2025 files for 2026 even if payroll shrank. An employer with no payments to employees still files, checking box c; one that closed checks box d.

Three special groups have different thresholds:

Household employers owe FUTA only if they paid $1,000 or more in cash wages in any quarter, and they generally report it on Schedule H (Form 1040) rather than Form 940. An employer with both household and business employees may fold the household FUTA into Form 940.
Agricultural employers file if they paid $20,000 or more in cash wages to farmworkers in any quarter, or employed 10 or more farmworkers in 20 or more different weeks. Wages paid to H-2A visa workers are counted for the test but are not subject to FUTA.
Exempt employers never file: 501(c)(3) organizations, state and local governments, and federally recognized tribal governments that participate in their state's unemployment system.

Independent contractors are not employees and do not count toward either test; see the employees vs contractors guide.

FUTA vs SUTA vs FICA: Who Pays What

FUTA is the federal unemployment tax, paid by the employer only on Form 940 once a year. SUTA is the state unemployment tax, paid by the employer to the state's fund on the state's own quarterly reports; paying it on time earns the 5.4% credit that cuts FUTA from 6.0% to 0.6%. FICA is Social Security and Medicare tax, split between employer and employee and reported on Form 941. Three taxes, three forms, and none offsets another.

	FUTA	SUTA	FICA
Who pays	Employer only	Employer (a few states also collect an employee share)	Employer 7.65% and employee 7.65%
Rate	6.0%, reduced to 0.6% by the state credit	Your state experience rate; new employers get a standard rate	12.4% Social Security + 2.9% Medicare, combined
Wage base (2026)	First $7,000 per employee	Set by each state; often higher than $7,000	$184,500 for Social Security; no cap for Medicare
Reported on	Form 940, annual	State quarterly wage and contribution report	Form 941 quarterly (or Form 944 annually)
Deposits	Quarterly, only once cumulative tax passes $500	Per state rules, usually quarterly	Monthly or semiweekly through EFTPS
2026 due date	February 1, 2027	Varies by state	April 30, July 31, November 2, 2026, February 1, 2027
Maximum per employee	$42 (more in a credit reduction state)	Depends on state rate and base	Employer share $11,439 Social Security at the wage base, plus 1.45% Medicare with no cap

What connects them: the state where you pay SUTA goes on Form 940 line 1a, and SUTA paid by the Form 940 due date decides whether you owe 0.6% or closer to 6.0%. An employer that never registered for state unemployment insurance owes the full 6.0% via line 9; the state tax ID guide covers registration.

Estimate Your Team's FUTA Bill and Deposit Trigger

Interactive

How much FUTA will Form 940 show for your team?

Enter your headcount, the average annual wage per employee, and whether your state carries a FUTA credit reduction. The card computes taxable FUTA wages, the tax at 0.6%, any Schedule A add-on, and whether quarterly deposits kick in.

Number of employees

Anyone you paid during the year.

Average annual wage per employee

Only the first $7,000 per employee counts.

State credit reduction

Total FUTA tax after adjustments (Form 940, line 12)

$168

$500 or less for the year: no deposits; pay it with Form 940 by February 1, 2027.

Line 7: taxable FUTA wages ($7,000 × 4)$28,000

Line 8: FUTA tax at 0.6%$168

FUTA cost per employee$42

Quarterly deposits start at12 employees at $7,000+

Your cumulative FUTA never passes $500, so Part 5 of Form 940 stays blank and the whole amount can be paid with the return. At $42 per full-wage-base employee, deposits would start at 12 employees.

Assumes state unemployment tax was paid on time (full 5.4% credit) and no payments exempt from FUTA. Employees paid under $7,000 are taxed on actual wages; the average-wage input can only approximate that. Credit reduction applies only to wages also subject to that state's unemployment tax. 2026 credit reduction states are final after November 10, 2026.

See FUTA next to FICA and SUTA per employee

Form 940 Line by Line (2025 Revision)

The form has seven parts across two pages plus, when needed, Schedule A. Enter whole dollars or dollars and cents (if you round, round every line), leave lines that do not apply blank, and put your name and EIN on both pages. This map was checked against the 2025 Form 940 and the 2025 instructions.

Type of return boxes (top of page 1): a. Amended; b. Successor employer; c. No payments to employees in the year; d. Final: business closed or stopped paying wages. An Aggregate Return Filers Only box below it is for section 3504 agents and CPEOs, who attach Schedule R (Form 940); a regular employer leaves it blank.

Line	What goes there	Notes from the instructions
Part 1
1a	Two-letter abbreviation of the one state where you paid state unemployment tax	Complete even if your state rate was 0%
1b	Check if you paid state unemployment tax in more than one state	Multi-state employer: complete Schedule A
2	Check if you paid wages in a credit reduction state	Complete Schedule A; see line 9 first
Part 2
3	Total payments to all employees for the year, taxable or not	Wages, bonuses, fringe benefits, 401(k) contributions, reported tips of $20+ a month
4	Payments exempt from FUTA tax, with boxes 4a fringe benefits, 4b group-term life insurance, 4c retirement/pension, 4d dependent care, 4e other	Only amounts you included on line 3; health plan contributions, qualified retirement plan contributions, wages a sole proprietor pays to a spouse, parent, or child under 21
5	Total of payments made to each employee in excess of $7,000, after removing line 4 amounts	Employee by employee
6	Subtotal: line 4 + line 5
7	Total taxable FUTA wages: line 3 minus line 6
8	FUTA tax before adjustments: line 7 × 0.006	Assumes the full 5.4% credit
Part 3
9	If ALL taxable FUTA wages were excluded from state unemployment tax: line 7 × 0.054	Brings the rate to 6.0%; if used, lines 10 and 11 stay blank
10	If SOME wages were excluded from state tax, or you paid ANY state unemployment tax late: line 7 of the worksheet in the instructions	Keep the worksheet; do not attach it
11	Credit reduction: total from Schedule A (Form 940)	Only wages also subject to that state's unemployment tax
Part 4
12	Total FUTA tax after adjustments: lines 8 + 9 + 10 + 11
13	FUTA tax deposited for the year, including any prior-year overpayment applied
14	Balance due: line 12 minus line 13	Over $500: must be deposited; $500 or less: may be paid with the return; under $1: nothing
15a	Overpayment: line 13 minus line 12
15b	Apply to next return, or send a refund	Refunds by direct deposit
15c to 15e	Routing number, account type, account number	For the refund
Part 5
16a to 16d	FUTA liability for each quarter, only if line 12 is more than $500	Liability incurred, not deposits; leave a zero quarter blank
17	Total tax liability for the year	Must equal line 12
Part 6	Third-party designee: name, phone, five-digit PIN	Expires one year after the due date
Part 7	Signature, title, date, phone; paid preparer block	Owner, officer, partner, or member depending on entity

Two reminders from the 2025 instructions: moving expense and bicycle commuting reimbursements are subject to FUTA and never go on line 4 (the One Big Beautiful Bill Act made that permanent after 2025), and an amended Form 940 is the same year's form with box a checked and an explanation attached; there is no Form 940-X.

Worked Example: A Four-Person Roastery in Oregon

Oksana runs a coffee roastery in Portland with four employees. In 2026 she paid $38,000, $29,000, $9,200, and $12,500 in wages, $88,700 in total, with no fringe benefits or other payments exempt from FUTA. Oregon is not a credit reduction state, and she paid her Oregon unemployment tax on time each quarter.

Form 940 line	Entry	Arithmetic
1a	OR	one state
3 Total payments to all employees	$88,700	$38,000 + $29,000 + $9,200 + $12,500
4 Payments exempt from FUTA	blank
5 Payments over $7,000 per employee	$60,700	$31,000 + $22,000 + $2,200 + $5,500
6 Subtotal	$60,700	line 4 + line 5
7 Total taxable FUTA wages	$28,000	$88,700 − $60,700, or 4 × $7,000
8 FUTA tax before adjustments	$168	$28,000 × 0.006
9, 10, 11	blank	all wages taxed by Oregon, paid on time, no credit reduction
12 Total FUTA tax after adjustments	$168
13 Deposited	$0	never passed $500
14 Balance due	$168	pay with the return by February 1, 2027
Part 5	blank	line 12 is $500 or less

Every employee earned more than $7,000, so each contributed exactly $7,000 to line 7 and $42 to line 8. Had the third employee earned $5,000 instead of $9,200, line 7 would have been $26,000 and line 8 $156, because FUTA taxes the first $7,000 or the actual wages, whichever is less.

Line 10 and the worksheet: late state tax and excluded wages

Line 10 covers two situations: some FUTA wages were not subject to state unemployment tax (corporate officers are excluded in some states), or you paid state unemployment tax after the Form 940 due date. The worksheet in the instructions starts from the maximum credit (line 7 × 0.054), subtracts state tax paid on time plus an additional credit for an experience rate below 5.4%, and allows only 90% of state tax paid late; the lost credit becomes line 10. In the IRS example, $78 of late state tax and excluded officer wages turn a $126 FUTA bill into $985.80.

Credit Reduction States for 2025 and 2026

A credit reduction state is one that borrowed from the federal government to pay unemployment benefits and still had a balance on two consecutive January 1s without repaying by November 10. Employers in that state lose part of the 5.4% credit: 0.3% for the first year, another 0.3% each year after, plus possible add-ons under IRC §3302(c)(2) for long-running loans. The extra tax is computed on Schedule A (Form 940), entered on line 11, and is due with the fourth-quarter deposit, not spread across the year.

On the 2025 Form 940, Schedule A lists two jurisdictions: California at 1.2% (0.012) and the U.S. Virgin Islands at 4.5% (0.045). New York, which carried a 0.9% reduction in 2024, dropped off. A California employer with three employees who each earned $7,000 or more of wages subject to California unemployment tax owes $126 on line 8 plus $21,000 × 0.012 = $252 on line 11, for $378 on line 12 (the example printed on Schedule A).

For 2026, the Department of Labor's potential list (January 2026) names the same two: California at a base reduction of 1.5%, plus a Benefit Cost Rate add-on estimated at 3.8% that California has had waived every prior year, and the U.S. Virgin Islands at 4.8%. Nothing is final until DOL confirms after November 10, 2026 which states failed to repay, so re-check the 2026 Schedule A before filing.

When Are FUTA Deposits Due?

Deposit FUTA tax only when your cumulative undeposited liability is more than $500 at the end of a quarter, by the last day of the following month: April 30, July 31, November 2, 2026 (October 31 is a Saturday), and February 1, 2027. A quarter at $500 or less carries into the next quarter until the running total passes $500; a fourth-quarter total of $500 or less may be paid with Form 940. Treasury Regulation §31.6302(c)-3 sets the $500 rule; every deposit goes by electronic funds transfer through EFTPS, IRS Direct Pay, or your IRS business tax account, and the payroll tax due dates guide has the full 2026 calendar.

At $42 per employee, the $500 line is crossed at 12 employees who each earn $7,000 or more; a smaller team pays once with the return. In a credit reduction state, the reduction amount is added to the fourth-quarter deposit.

When will Form 940 for 2026 be available?

The IRS posts each year's Form 940 and Schedule A after the November 10 credit reduction determination (the 2025 Schedule A is dated November 12, 2025), so expect the 2026 forms in late November or December 2026. Use the 2026 form for 2026 wages; the 2025 form only amends 2025 returns.

Form 940 Penalties

Late FUTA deposits carry the same failure-to-deposit tiers as Form 941 deposits under IRC §6656 (2% to 15% of the late amount), and a late Form 940 draws the 5%-per-month failure-to-file penalty under IRC §6651, up to 25%; the Form 941 instructions guide sets out the tiers. Form 940's own penalty is quieter: state unemployment tax paid after the Form 940 due date earns only 90% credit, raising federal tax through line 10. Penalty abatement goes on Form 843.

What Form 940 Does NOT Cover

Social Security, Medicare, and income tax withholding. Those go on Form 941 or Form 944; Form 940 never reports them.
State unemployment tax itself. Form 940 reports the federal tax and the credit for state tax paid; the state tax is paid to the state on its own forms.
Wages above $7,000 per employee. Line 5 removes them; a $200,000 salary and a $7,000 salary owe the same $42.
Independent contractors. Payments on Form 1099-NEC are not wages and are not counted for the $1,500 test or line 3.
Payments exempt by law. Health plan contributions, qualified retirement plan contributions, and wages a sole proprietor pays to a spouse, parent, or child under 21 (wages paid by a corporation don't qualify) go on line 4 and never reach line 7.
Employees of 501(c)(3) organizations and governments. No FUTA and no Form 940.

Common Form 940 Mistakes

Putting the whole payroll on line 7. Line 7 is line 3 minus line 6; forgetting line 5 (wages over $7,000 per employee) can multiply the tax by ten.
Subtracting exempt payments twice. Line 5 is computed after removing the line 4 amounts from each employee's pay, so an exempt fringe benefit does not also reduce the $7,000 excess.
Reporting deposits on lines 16a to 16d. Part 5 wants liability by quarter, and only when line 12 is more than $500.
Skipping Schedule A after checking line 1b or line 2. Multi-state and credit reduction employers must attach it; line 11 comes from it.
Paying state unemployment tax after February 1, 2027. Only 90% of the late payment earns credit, and the shortfall lands on line 10.
Using line 9 when only some wages were excluded from state tax. Line 9 is for all wages excluded; partial exclusion goes through the line 10 worksheet.

Tracking Each Employee's First $7,000: How Jupid Helps

Line 5 is where Form 940 goes wrong, because it needs a per-employee view of the year: when did each person cross $7,000, and which payments were exempt. Jupid connects to your business bank account and categorizes payroll transactions automatically at 95.9% accuracy, so wages, state unemployment payments, and federal deposits sit in separate running totals all year. Ask the AI accountant in WhatsApp or iMessage "what did we pay Oregon unemployment this quarter?" and you get a real-time answer from your own transactions. Jupid does not prepare or file Form 940; it keeps the figures you carry onto it visible before February. Try Jupid.

Before You File Form 940 for 2026

Confirm you met the $1,500-in-a-quarter or 20-weeks test in 2025 or 2026, and that you are using the 2026 form.
Pull total 2026 payments per employee, mark exempt payments for line 4, and compute each employee's excess over $7,000 for line 5.
Verify every 2026 state unemployment payment was made by February 1, 2027; if any was late or any wages were excluded from state tax, complete the line 10 worksheet.
Check the final 2026 credit reduction list (after November 10, 2026); if your state is on it, complete Schedule A and add line 11 to your fourth-quarter deposit.
Compare line 12 to your deposits on line 13; if line 14 is over $500, deposit it through EFTPS rather than paying with the return.
Fill in Part 5 only if line 12 is more than $500, sign Part 7, and file by February 1, 2027 (February 10 if all deposits were timely).

Use This with Your AI Agent

If you use Claude, ChatGPT, or another AI agent to prepare Form 940, our open-source skill gives it the rules from this guide. It builds a per-employee table so line 5 removes everything above each worker's first $7,000, sorts exempt payments into boxes 4a to 4e, runs the line 10 worksheet when state unemployment tax was paid late or some wages were excluded, fills Schedule A for multi-state employers and credit reduction states such as California, and checks every quarter against the $500 deposit rule before completing Part 5. Review the draft before you file.

→ jupid-tax/jupid-skills on GitHub – forms/form-940/SKILL.md

For Claude Code, clone the repo and run cp -r jupid-skills/forms/form-940 ~/.claude/skills/. For the Anthropic SDK, load SKILL.md into the system prompt and the references/ files on demand. For browser-automation runtimes, filing.md covers the e-file or paper-file workflow.

Sources

Reviewed September 23, 2026 against the 2025 revision of Form 940 and Schedule A. This article is general education, not personalized tax, legal, or accounting advice. Credit reduction rates for 2026 are not final until the Department of Labor's November 10, 2026 determination, and state unemployment rules vary. Consult a qualified payroll tax professional for your situation.