QuickBooks Form 940 is an essential annual payroll tax form used by employers to report Federal Unemployment Tax Act (FUTA) liability to the IRS. If you run payroll using QuickBooks Desktop or QuickBooks Online Payroll, understanding how Form 940 works—and how to generate it correctly—is critical to staying compliant and avoiding IRS penalties.
In this complete guide, you’ll learn what Form 940 is, who needs to file it, how QuickBooks calculates FUTA tax, and step-by-step instructions to prepare, review, file, and correct Form 940 using QuickBooks.
What Is IRS Form 940?
Form 940 is an annual IRS payroll tax form used by employers to report and pay FUTA tax. FUTA funds unemployment benefits for workers who lose their jobs.
Unlike Social Security or Medicare taxes, FUTA is paid entirely by the employer—no amount is withheld from employee wages.
Key Facts About FUTA Tax
- FUTA tax rate: 6.0% on the first $7,000 of each employee’s wages
- Maximum FUTA tax per employee: $420 per year
- Employers usually receive a credit of up to 5.4% for state unemployment taxes paid
- Effective FUTA rate for most employers: 0.6%
Who Must File Form 940?
You must file Form 940 if either of the following applies:
- You paid $1,500 or more in wages in any calendar quarter during the year
- You had one or more employees for at least part of a day in 20 or more different weeks during the year
This includes:
- Small businesses
- Corporations and partnerships
- Sole proprietors with employees
- Household employers (with special rules)
What Is QuickBooks Form 940?
QuickBooks Form 940 is the automatically generated FUTA tax report created using payroll data in QuickBooks Desktop Payroll or QuickBooks Online Payroll.
QuickBooks:
- Tracks FUTA-taxable wages
- Applies FUTA limits automatically
- Calculates credits for state unemployment tax
- Prepares Form 940 for review and filing
How QuickBooks Calculates FUTA Tax
QuickBooks calculates FUTA tax based on:
- Employee taxable wages (up to $7,000 per employee)
- FUTA tax rate (6.0%)
- State unemployment tax credits
If your state unemployment tax is paid on time, QuickBooks applies the maximum credit, reducing your FUTA rate to 0.6%.
How to Generate Form 940 in QuickBooks Desktop
Step 1: Update QuickBooks Payroll
- Go to Employees > Get Payroll Updates
- Install the latest tax table updates
Step 2: Open Form 940
- Navigate to Employees > Payroll Tax Forms & W-2s
- Select Process Payroll Forms
- Choose Annual Form 940 – Employer’s Annual FUTA Tax Return
Step 3: Review Form 940
Verify:
- Employee FUTA wages
- State unemployment tax credit
- Total FUTA tax due
Step 4: File Form 940
- E-file directly through QuickBooks (if enabled)
- Or print and mail the form to the IRS
How to Generate Form 940 in QuickBooks Online Payroll
- Sign in to QuickBooks Online
- Go to Taxes > Payroll Tax
- Select Annual Forms
- Choose Form 940
- Review the form carefully
- Submit electronically or download for mailing
Form 940 Filing Deadline
- January 31 following the tax year
- Deadline extends to February 10 if all FUTA taxes were deposited on time
Missing the deadline may result in:
- IRS penalties
- Interest charges
- Payroll compliance issues
How to Pay FUTA Tax in QuickBooks
FUTA tax payments are made quarterly if your accumulated tax exceeds $500.
QuickBooks allows you to:
- Schedule electronic payments (EFTPS)
- Track FUTA liabilities
- Record manual IRS payments
Common Form 940 Errors in QuickBooks
Incorrect FUTA Wages
Caused by:
- Improper payroll item setup
- Employee exemptions misconfigured
Missing State Credit Reduction
Occurs if:
- State unemployment tax payments are late
- Credit reduction state applies
Payroll Data Entry Mistakes
- Manual paycheck adjustments
- Incorrect employee setup
How to Correct Form 940 Errors
- Correct payroll data in QuickBooks
- Regenerate Form 940
- File Form 940-X if the original return was already submitted
- Pay any additional FUTA tax due
Best Practices to Avoid FUTA Filing Issues
- Keep payroll tax tables updated
- Pay state unemployment taxes on time
- Review payroll reports quarterly
- Reconcile payroll liabilities monthly
- Run Form 940 preview before filing
Frequently Asked Questions (FAQs)
Is Form 940 the same as Form 941?
No. Form 940 is filed annually for FUTA tax, while Form 941 is filed quarterly for federal income tax withholding, Social Security, and Medicare taxes.
Does QuickBooks automatically file Form 940?
QuickBooks prepares the form, but filing depends on your payroll service level and e-file setup.
What happens if I don’t file Form 940?
Failure to file may result in IRS penalties, interest, and compliance audits.
Final Thoughts
QuickBooks Form 940 simplifies FUTA tax reporting when payroll is set up correctly. By keeping payroll data accurate and reviewing Form 940 before filing, businesses can avoid costly mistakes and remain IRS-compliant.
If you manage payroll using QuickBooks Desktop or QuickBooks Online, understanding Form 940 is essential for year-end payroll success.
Need help with QuickBooks payroll or Form 940 issues? CAll Now At 1-888-493-2290
