Form 940 and unpaid FUTA tax
Last updated · Reviewed for accuracy against IRS.gov guidance
Federal unemployment tax (FUTA) is an employer-only tax reported annually on Form 940, due January 31. The rate is 6.0% of the first $7,000 of each employee's wages, reduced by up to 5.4% for state unemployment taxes paid — usually 0.6%. Because nothing is withheld from employees, unpaid FUTA tax is not a trust fund tax.
Business tax relief assessment
How FUTA balances arise
- Late or unpaid state unemployment tax. The full 5.4% credit requires timely state payments. Late state payments can shrink the credit and raise FUTA owed.
- Credit reduction states. When a state has outstanding federal unemployment loans, employers there get a smaller credit and owe more (Schedule A of Form 940).
- Missed quarterly deposits. If accumulated FUTA liability exceeds $500 in a quarter, it must be deposited by the last day of the following month.
- Never filing. A new EIN with employees creates a 940 filing requirement; missing it generates notices such as CP259.
Why FUTA debt is treated differently
The Trust Fund Recovery Penalty covers only amounts withheld from employees or collected from customers. FUTA is paid entirely by the employer, so it isn't a trust fund tax and generally can't be assessed against owners or officers of a corporation or LLC personally. For sole proprietors, all business taxes are already personal.
That makes FUTA a lower personal-risk debt than Form 941, which matters when deciding how to designate voluntary payments: many businesses direct money to 941 trust fund taxes first.
Penalties and interest
Late FUTA deposits draw the failure-to-deposit penalty (2%–15%). A late Form 940 adds the failure-to-file penalty (5% per month, up to 25%), late payment adds 0.5% per month, and interest runs at 7% a year. First Time Abate is available for many of these — see payroll penalty abatement.
Resolving a 940 balance
File any missing 940s, confirm state unemployment payments were timely and reported correctly, and check whether a credit reduction applied. Then pay or include the balance in a business payment plan. Businesses with no trust fund taxes owed can use a Simple Payment Plan for balances up to $50,000; with trust fund taxes the limit is $25,000.
State unemployment is a separate debt
Your state unemployment agency collects state unemployment insurance (SUI) separately and has its own penalties and collection tools. Paying SUI late also affects your FUTA credit, so resolving the state account can reduce the federal one. Our state withholding guide explains how state payroll debts generally differ from federal ones. Run the business assessment to see options across both.
See which relief programs you may qualify for
Answer 8 quick questions. Free, takes under 60 seconds, and won't affect your credit.
Start the calculatorFrequently asked questions
Is FUTA withheld from employee pay?
+
No. FUTA is an employer-only tax; it must not be withheld from wages.
When is Form 940 due?
+
January 31 for the prior year, or February 10 if all FUTA deposits were made on time.
Can I be personally liable for unpaid FUTA?
+
Generally not through the Trust Fund Recovery Penalty. Sole proprietors are personally liable for all business taxes.
Do household employers file Form 940?
+
Household employers typically report FUTA on Schedule H with their Form 1040 instead.
What is the maximum FUTA per employee?
+
At the usual 0.6% net rate on the first $7,000 of wages, $42 per employee per year, more in credit reduction states.
Related topics
Sources
IRS figures on this page (rates, fees, thresholds) verified as of 2026-11-04. See our editorial policy.
TaxSettlementCalculator.com is not a tax firm, law firm, CPA, or government agency and is not affiliated with the IRS or any state tax agency. Estimates are for educational purposes only and are not tax, legal, or financial advice. Results vary based on individual circumstances, and no outcome is guaranteed. We connect users with independent tax relief professionals.