Everything You Need to Know About the 940 Schedule A

What is the form for?

The 940 Schedule A tax form is used to specify how much employers are taxed under the Federal Unemployment Tax Act (FUTA). The federal government collects this tax to maintain the unemployment programs active in each state. The rate ends up being 0.6% for employers after credit reduction, and it is due quarterly. The 940 Schedule A form is filed annually as a supplement to Form 940. The form’s main purpose is to help employers calculate their tax rate for the state in which they operate a business. 

Who has to fill out the form? 

Employers are the only ones who must pay FUTA tax. There are two criteria that determine which kinds of employers must pay:

  1. Employers who have paid wages more than $1,500 in any quarter
  2. Employers whose employee(s) works at least 20 weeks during the year

It is important to note that employees are not responsible for paying this tax and should not be paying. While the tax is collected quarterly, employers only need to file the form once per year by January 31st. 

What are the key components of the form? 

The 940 Schedule A form consists mainly of a large table listing every U.S. state and territory, U.S. Virgin Islands and Puerto Rico. Each state has a small box to the left of the listing for marking which states apply– more on that step later on. There are three columns that accompany each state or territory: FUTA Taxable Wages, Reduction Rate, and Credit Reduction. Other than the table, the only other elements of the form are an employer identification number and name box and a box of the bottom for the total credit reduction. 

How do employers complete the form?

As is the case with other IRS tax documents, a step-by-step completion guide accompanies the form. The first thing employers should do is write in their employer identification number (EIN) in the boxes at the top of the page along with their name in space below the EIN. Then, employers must mark an “X” in the boxes of any state they had to pay FUTA, regardless of the rate they paid. In the FUTA Taxable Wages box for any state/territory marked with an “X”, write in the total taxable wages. Next, write the reduction rate. Multiply the taxable wages by the reduction rate to get your total credit reduction for each applicable state. Finally, add all credit reduction amounts and enter the total in the designated box at the bottom of the form. 

Additional Information 

There are resources out there to help understand the form better and clarify questions you may have about FUTA. The more you know, the easier the form will be to complete.