Form 940 Instructions for 2017

Are you wondering how to prepare and file Form 940?

Below we have provided line by line Form 940 instructions for 2017.  Following these instructions will ensure full compliance with the IRS to avoid costly penalties. Keep in mind that if you paid out wages totaling $1,500 or more in any quarter you are required to file Form 940.

We recommend when following the Form 940 instructions below to have a blank Form 940 in front of you.

Further, QuickBooks offers additional 940 information and a free trial offer for preparing and submitting Form 940.

Form 940 Instructions:

Line 1a:
One State only, so here you will enter your state abbreviation. Double check that you enter the correct state abbreviation to prevent rejection. For a list of state abbreviations you can go to if needed.

The employee does not pay FUTA and File Form 940, the employer does.  FUTA and Form 940 applies to the first $7,000 of wages/salary for the tax yr.

Line 1b:
If you’re a multi-state filer you will check this box.  Most small businesses don’t have to worry about checking this box.  If you’re not a multi-state filer just leave this box empty.  If you do conduct business in more than one state make sure you check this box, as the penalties for failing to do so are costly.

Line 2:
You will check this box only if paid tax in a state that is subject to the credit reduction.  So, if say your state applies a 4% tax for unemployment and has a 4 yr reduction credit of 1.2%, then the credit for FUTA is decreased from 4% to 2.8%, so you will have to pay in FUTA adjusted of 3.2% (6%-2.8%), rather than 2% (6%-4%) for your employees.

Line 3:
Enter the total payments made to all employees during the calendar year, which is January 1st to December 31st. Employee payments include compensation, fringe benefits, retirement/pension and other misc payments such as tips.  Make sure you have a good record keeping system to keep track of all employee payments made, as this is common area for mistakes to be made.

Line 4:
This reports the payments that are exempt from FUTA tax.  Some payments are considered exempt because some payments are included in the definition of wages, per the IRS definition.  Your 940 payroll program will determine payments that are exempt, so need to worry about this.

Line 5:
You will report the total payments made to any employee in excess of $7,000.  The $7,000 is called the FUTA wage base.
Instructions for IRS form 940
So, you will need to total wages, adding employee payments made and then subtract out FUTA payments that are exempt exceeding $7,000 for any employee.

Line 6:
This is your subtotal, the total of line 4 plus line 5.

QuickBooks makes these calculations easy and provides additional if needed.

Line 7:
Will equal your total taxable FUTA wages.   This is the result of line 6 minus line 3.

Line 8:
This will provide your total of FUTA tax due before any adjustments.  You will multiply the total of line 7 by .006 to get the total for line 8.

Line 9:
So if you if all of your taxable FUTA  wages were exempt from State unemployment taxes you will need to multiple line 7 by .054.  If this line doesn’t apply to you just keep it blank.

Line 10:
This line is typically left blank, as it usually doesn’t apply to small businesses.  QuickBooks provides detailed information on Step 10 and whether it applies to you.

Form 940 can be a complicated Form, which is why we recommend using an online program to prepare and submit.

Quickbooks ensures your FUTA amounts are calculated to the penny.  QuickBooks has implemented detailed Form 940 Instructions for 2017 that are easy to follow and understand.

The Quickbooks system calculates the 940 figures and will then submit the Forms to the IRS for you.

Form 940 Video Instructions:

Form 940 State Credit Calculations

Keep in mind that each state has its own tax rate for unemployment.  You can qualify for a tax credit (FUTA) totaling 5.4% due to these state taxes.

Now, some tax have received money from the Federal government in the form of loans for their unemployment accounts and therefore receive a credit reduction on unemployment taxes for their state.  Most payroll programs will have the all of the specific state rates built into their systems.

Closing Thoughts

Yes, this gets very complicated but Quickbooks Payroll Online is a lifesaver for making these calculations when preparing your Form 940. Detailed Form 940 Instructions have been built into most payroll software programs such as with QuickBooks.  The program already has the tax rates built into their online system to save you valuable time.

The Quickbooks free payroll trial offer is a product we highly recommend trying when preparing and submitting your Form 940.

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