Financial Glossary
Form 940 (Employer's Annual FUTA Tax Return)
Form 940 is the IRS return employers use to report and reconcile their annual Federal Unemployment Tax Act (FUTA) liability. FUTA, paid entirely by the employer, helps fund unemployment compensation alongside state systems. The form calculates the year's FUTA tax, applies any credit for state unemployment taxes paid, and reconciles it against deposits already made.
Problem & Application
Any business with employees generally has a FUTA obligation, so seasonal hospitality and campground operators that ramp staff up and down still need to file Form 940 each year even if employment was brief. The interplay with state unemployment (SUI) matters because the FUTA credit can shrink in states that borrowed from the federal unemployment fund, quietly raising an employer's effective rate. Check current IRS instructions for filing thresholds, deposit rules, and applicable credit reductions.
In Short
Form 940 closes out the federal side of unemployment taxes each year and ties directly to how much state unemployment tax you paid. Filing it correctly avoids penalties and surprise rate adjustments.