This article will assist you with troubleshooting when the line items are incorrect on the Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return.
Below is a line-by-line guide for how each line on Form 940 is calculated. To troubleshoot a calculation error:
- Determine which line or lines you disagree with.
- Review the information below to determine how the program calculates the line.
- Go to the source (Employee Information, Payroll Check(s), etc. to either confirm the accuracy or make a change.
- Line 1a: One state only - This entry is based on the selection made to the Paid state unemployment tax in: one state field on the Form 940 data input screen (accessed during 940 printing).
- Line 1b: More than one state - This entry is marked if the Paid state unemployment tax in More than one state field is checked on the Form 940 data screen.
- Line 2: Credit Reduction - This entry is marked if your state is subject to the "CREDIT REDUCTION" for the current year.
- Credit Reduction states are determined every year based on which states need to borrow federal funds in order to meet state unemployment obligations.
- This loan is repaid by reducing the standard credit given for making payments to the state unemployment agency, applicable to all Employers in the state.
- If line 2 is checked, the Schedule A button at the bottom of the input screen turns on.
- For more information about Form 940 Credit Reduction States, refer to this article.
- Line 3: Total payments made to all employees - Total wages paid to employees (without regard to the $7000 limitation).
- This line includes all amounts paid to employees on their paycheck.
- It ignores the FUTA column in the Employee setup screen.
- Per IRS Instructions for Form 940, all payments are to be included on this line whether wages or other payments.
- The tax calculation is made after Lines 4 and 5 are deducted from this amount.
- Line 4: Payments exempt from FUTA tax - The program totals all GP items on every employee's Wage/Withholding screen without a checkmark in the FUTA column + every WH item that does have a checkmark in the FUTA column.
- 4a: Fringe Benefits - 12L, 12P, 12R, 12W(E), 12J, 12V, 12T, 12K, 12Q, 12W(I)
- 4b: Group Term Life Insurance - Box C
- 4c: Retirement/Pension - Box 11, 12AA, 12BB, 12D, 12E, 12F, 12G, 12H, 12S, 12Y, 12Z
- 4d: Dependent Care - Box 10
- 4e: Other - Box 14
- Line 5: Total of payments made to each employee in excess of $7000 - The program looks at each employee to determine whether the $7000 limitation has been met.
- The total excess for all employees is reported on this line.
- Line 6: Subtotal - Program totals lines 4 and 5.
- Line 7: Total taxable FUTA wages - Program subtracts line 6 from line 3.
- Line 8: FUTA tax before adjustments - Program multiplies line 7 by .006.
- Line 9: If all of the taxable FUTA wages you paid were excluded from state unemployment tax, multiply line 7 by .054.
- When line 9 is checked, the program multiplies the amount on line 7 by .054.
- Line 10: If some of the taxable FUTA wages you paid were excluded from state unemployment tax, OR you paid any state unemployment tax late.
- When line 10 is checked, the program allows access to the Line 10 Worksheet. The amount from line 7 of the worksheet is reported here.
- Line 11: If Credit Reductions, enter the amount from Schedule A.
- This amount pulls from the total states with the credit reduction on Schedule A.
- Line 12: Total FUTA tax after adjustments.
- The program totals lines 8, 9, 10 and 11.
- Line 13: FUTA tax deposited for the year, including any payment applied from a prior year,
- The program determines this amount by looking at FUTA payments made in the Print Tax Deposit Checks screen.
- If no payments (deposits) are entered in the Print Tax Deposit Checks screen, the amount should be entered manually on the form input screen, the form itself, or entered in the Print Tax Deposit Checks screen.
- Line 14: Balance Due - If line 12 is more than line 13, the difference is entered here.
- Line 15: Overpayment - If line 13 is more than line 12, the difference is entered here.
- Line 16: Report the amount of your FUTA tax liability for each quarter, don't enter the amount you deposited. If you had no liability for a quarter, leave the line blank.
- Note that line 16 only prints when line 14 is greater than $500.
- These liabilities pull from the Print Tax Deposit Checks screen.
- The Print Tax Deposit Checks screen is updated by printing the Payroll Journals for each month, one month at a time.
- 16a: First quarter FUTA liability.
- 16b: Second quarter FUTA liability.
- 16c: Third quarter FUTA liability.
- 16d: Fourth quarter FUTA liability.
- Note that the program adjusts this amount to match line 12 if there are discrepencies. This is per 940 Form Instructions.
- Line 17: Total tax liability for the year.
- The program totals lines 16a through 16d and must equal line 12.
- Third Party Designee - Click the Third Party Designee button and complete the fields to print information in this section.
- Paid Preparer Signature - This part must be filled out in pen and ink.
- Paid Preparer Information - Click the Paid Preparer button on the input screen to print the fields in this section.