Your first January as an employer brings two federal returns at once: the fourth-quarter Form 941 for Social Security, Medicare and withheld income tax, and Form 940 for federal unemployment tax. Form 940 is the simpler of the two, but first-time employers often miss the deposit rule or the condition attached to the state credit. This post covers both, with a worked example.
What is Form 940?
Form 940, the Employer's Annual Federal Unemployment (FUTA) Tax Return, reports the federal unemployment tax you owe for a calendar year. FUTA pays for the federal side of the unemployment insurance system; your state runs its own unemployment tax alongside it. Only employers pay FUTA. Nothing is withheld from employees for it, so it never appears as a deduction on a pay stub.
Do you have to file Form 940?
The IRS test has two parts, and meeting either one means you file. For the 2026 return you file if, in 2025 or 2026:
- you paid wages of $1,500 or more to employees in any calendar quarter, or
- you had one or more employees for at least some part of a day in any 20 or more different weeks.
Household employers are the main exception. If you pay a nanny, caregiver or housekeeper, the FUTA test is $1,000 in cash wages in any calendar quarter, and you report it on Schedule H with your own Form 1040 instead of Form 940. If you also have business employees, the IRS instructions let you include household employees on Form 940 instead.
How FUTA is calculated
FUTA is 6.0% of the first $7,000 of wages you pay each employee in the year. You get a credit of up to 5.4% for state unemployment tax, which brings the net rate to 0.6%. At 0.6%, the most you owe per employee is $42 a year.
| Item | Figure |
|---|---|
| Gross FUTA rate | 6.0% |
| Wages taxed | First $7,000 per employee per year |
| Maximum state credit | 5.4% |
| Usual net rate | 0.6%, at most $42 per employee |
| Condition for the full credit | State unemployment tax paid in full by the Form 940 due date |
Two things cut the credit. If you pay state unemployment tax late, you lose part of it. And if your state is a credit reduction state (one that borrowed from the federal unemployment fund and hasn't repaid it), the credit is reduced for every employer there, and you file Schedule A (Form 940) to work out the extra tax. The Department of Labor announces credit reduction states after 10 November each year, so check its list for 2026 before you file.
Some payments aren't FUTA wages. The Form 940 instructions list exempt payments, including certain employer contributions to health and retirement plans and workers' compensation payments. Subtract them before you apply the $7,000 cap.
When to deposit FUTA
Form 940 is filed once a year, but FUTA can be due during the year. Work it out each quarter. If the amount owed is more than $500, deposit it by the last day of the month after the quarter ends. If it is $500 or less, carry it forward to the next quarter.
| Quarter | Deposit by (if more than $500 is owed) |
|---|---|
| January–March | 30 April 2026 |
| April–June | 31 July 2026 |
| July–September | 31 October 2026 (a Saturday, so the next business day) |
| October–December | 31 January 2027 (a Sunday, so the next business day); if $500 or less, deposit or pay with Form 940 |
Deposits are made by electronic funds transfer, through EFTPS, IRS Direct Pay or your business tax account, not by mailing a check with the return.
A worked example
Say you hired two people in 2026: one paid $40,000 over the year, one part-timer paid $5,000. You paid your state unemployment tax on time and your state isn't a credit reduction state.
| Employee | Wages paid | FUTA wages (first $7,000) | FUTA at 0.6% |
|---|---|---|---|
| Full-time | $40,000 | $7,000 | $42.00 |
| Part-time | $5,000 | $5,000 | $30.00 |
| Total | $45,000 | $12,000 | $72.00 |
The $72 never passes $500 in any quarter, so nothing is deposited during the year. Because the year-end amount is $500 or less, you can deposit it or pay it with Form 940 by 1 February 2027.
Filing the 2026 Form 940, step by step
- Check you meet the $1,500-a-quarter or 20-week test. If not, you don't file.
- Add up total payments to employees for 2026, then subtract exempt payments and each employee's wages above $7,000.
- Multiply the FUTA wages by 0.6%, or follow Schedule A if you paid wages in a credit reduction state or in more than one state.
- Subtract the FUTA you deposited during the year to find the balance due or overpayment.
- File electronically or on paper by 1 February 2027. If you deposited all FUTA on time, you have until 10 February 2027.
- Keep the return and your workings with your employment tax records for at least 4 years.
The IRS publishes the 2026 Instructions for Form 940 around the end of the year; until then the 2025 instructions and Publication 15 (2026) give the rules above. Check the final 2026 instructions before you file.
Where PayDocs fits
PayDocs doesn't file Form 940 or make tax deposits. It makes the documents your employees receive: a pay stub each payday and Form W-2 copies at year end. Your year-to-date pay stub totals are the wage figures you start from on Form 940. PayDocs works out federal income tax, Social Security, Medicare and supported state taxes for 2026 pay dates (see what we calculate).
This is general information about US federal rules as of 7 October 2026, not tax or legal advice. State rules add to it; check your state's labor and revenue departments.
Questions
Who has to file Form 940?
Employers who paid $1,500 or more in wages in any calendar quarter of 2025 or 2026, or had an employee for part of a day in 20 or more weeks. Household employers usually report FUTA on Schedule H instead.
When is Form 940 due for 2026?
1 February 2027, because 31 January 2027 is a Sunday. If you deposited all your FUTA tax when it was due, you have until 10 February 2027.
What is the FUTA rate for 2026?
6.0% of the first $7,000 of each employee's wages, less a credit of up to 5.4% for state unemployment tax paid on time. Most employers pay a net 0.6%, at most $42 per employee.
Do I have to deposit FUTA every quarter?
Only when the amount owed, including amounts carried forward, is more than $500 at the end of a quarter. Otherwise carry it forward to the next quarter. A final year-end amount of $500 or less can be deposited or paid with Form 940.
Is FUTA taken out of an employee's paycheck?
No. FUTA is paid only by the employer, so it never appears as a deduction on a pay stub. The employee's pay stub shows Social Security, Medicare and income tax withheld, but not FUTA.
Sources
- IRS: Topic 759, Form 940 deposit requirements (FUTA)
- IRS: Instructions for Form 940 (2025)
- IRS: FUTA credit reduction
- IRS: Publication 15 (2026), Employer's Tax Guide
Sources checked October 7, 2026. This article explains how pay documents work; it is not tax or legal advice.
