Form 940 from Payroll Records: 2026 FUTA Wages, Credit, and Deposits

Form 940 reports an employer's annual federal unemployment tax (FUTA), but the employer may have to deposit that tax during the year. A pay stub can help identify each employee's wages and pay dates; it cannot by itself establish the employer's FUTA liability, state unemployment contributions, allowable credit, or federal deposits. FUTA is an employer tax. It is not withheld from the worker's net pay.

This guide covers U.S. federal rules for 2026 wages, reviewed October 2, 2026. The IRS's 2026 Publication 15 supplies the current liability and deposit rules. As of this review, the IRS's publicly linked Form 940 instructions are for tax year 2025; use them only to understand the return's general layout, and recheck the final 2026 form and instructions before filing. The Department of Labor says final 2026 FUTA credit reductions are not determined until November 10, 2026. Do not use a 2025 credit-reduction list as the 2026 answer.

Who must pay FUTA and file Form 940 for 2026?

Under the general employer test, FUTA applies to wages paid to employees other than farmworkers or household workers if the employer either paid $1,500 or more in any calendar quarter of 2025 or 2026, or had at least one employee for any part of a day in 20 different weeks of 2025 or 2026. The weeks need not be consecutive. For 2026, IRS Publication 15, section 14 gives separate tests: household employers generally use a $1,000 cash-wage quarter test, while farm employers use a $20,000 cash-wage quarter or 10-workers-in-20-weeks test. Those are distinct categories; do not apply the $1,500 general test to every employer.

A correctly classified independent contractor's payment is not an employee wage for FUTA. The label “1099” on a document does not settle worker status, however; the actual relationship must meet applicable classification rules. Governmental and certain tax-exempt employers and specific services can be exempt. Household employers ordinarily report FUTA on Schedule H rather than Form 940 if they do not include household wages on Forms 941, 943 or 944. An employer with multiple states, a business acquisition, or a special industry should review the final instructions for its filing path.

Form 940 is different from Form 941. Form 941 generally reports quarterly federal income-tax withholding and Social Security/Medicare taxes, including employer shares; Form 940 reports annual FUTA. A net-pay or employee-tax column from Form 941 is therefore not a FUTA total. For the quarterly payroll-tax bridge, see our Form 941 guide.

How do you apply the 2026 $7,000 FUTA wage base?

The 2026 FUTA rate before credit is 6.0% on the first $7,000 of FUTA-taxable wages paid to each employee during the calendar year. It is not a $7,000 limit for the whole business, and it is not a $7,000 limit that resets every quarter. The state unemployment wage base may differ. After an employee reaches the federal cap, later covered wages to that employee in the same year no longer add to the ordinary FUTA base, even though they remain payroll wages for other purposes. Check each pay date and each employee's YTD FUTA wages.

For one fictional worker, assume no FUTA-exempt payments and $6,000 paid in Q1 2026, then $3,000 in Q2. Q1 contributes $6,000 to the FUTA wage base. Only the first $1,000 of Q2 fills the remaining space to $7,000; the other $2,000 is above the cap. If the worker is paid more in Q3, ordinary FUTA-taxable wages for that worker remain at $7,000 for the year. A qualifying successor employer may be able to count a predecessor's wages, but the rules require checking the acquisition facts and the Form 940 instructions.

Not every payroll payment is FUTA-taxable. Start from actual payments to employees, classify any payments that the law exempts from FUTA, then identify each employee's amount over the annual $7,000 federal limit. Some benefit payments can be exempt, while others remain in FUTA wages; federal income-tax or FICA wage bases are not always interchangeable with the FUTA base. The IRS's special-payment table and final Form 940 instructions govern the classification. Our gross-pay versus taxable-wages guide explains why a single “taxable” label is insufficient.

Is FUTA always 0.6% after the state unemployment credit?

No. The statutory 2026 rate is 6.0%. A credit for eligible state unemployment tax can be as much as 5.4% of FUTA-taxable wages, leaving 0.6% if the employer qualifies for the full credit. The IRS says the maximum credit generally requires state unemployment tax paid in full and on time on the same FUTA wages and no applicable state credit reduction. State unemployment tax rates and wage bases are separate; an employer's assigned SUTA rate need not literally be 5.4% to qualify for the full federal credit. If state tax was not paid in time, or some federal wages are not subject to state unemployment tax, the effective FUTA cost can be higher.

Credit reductions are another year-end check. The U.S. Department of Labor's FUTA credit-reduction page says the current-year list is potential until the November 10 determination. A state with a qualifying outstanding federal unemployment loan can cause a reduced federal credit, increasing the employer's FUTA tax; extra credit-reduction liability is generally assigned to the fourth quarter for deposit purposes. As of October 2, 2026, do not treat any potential 2026 state list as final. Recheck the DOL determination, the state assignments, and the final 2026 Form 940 Schedule A instructions before filing. An employer that paid wages in more than one state generally needs Schedule A even without a credit-reduction state.

The employee side of a stub should not show FUTA as a wage deduction. Some states have separate employee unemployment or disability contributions, but those are state-specific and are not the employer's federal FUTA. Our unemployment-insurance pay-stub guide explains how to investigate an unfamiliar “UI” line.

Can a payroll register produce the annual FUTA amount?

Assume a fictional U.S. employer has 12 covered employees. Each receives $6,000 in Q1 and $3,000 in Q2 2026, with no additional employees or pay in Q3–Q4. Every payment is FUTA-taxable until the $7,000 per-employee cap, no payments are exempt, and the employer qualifies for the full 5.4% state-tax credit with no 2026 credit reduction. These conditions make the effective example rate 0.6%; they are not a default for every employer.

Across 12 workers, cash payments total $108,000 (12 × $9,000). With no exempt payments, $24,000 lies above the per-worker base (12 × $2,000), leaving $84,000 of FUTA-taxable wages (12 × $7,000). The gross 6.0% tax is $5,040. The assumed full 5.4% credit is $4,536. Thus $5,040 − $4,536 = $504 net FUTA for the year. Another employer's credit must be calculated from its actual state-tax and credit-reduction circumstances.

Do not copy these lines mechanically onto a 2026 Form 940 before the final revision is available. The 2025 instructions show how the return separates total payments, FUTA-exempt payments, over-base wages, state-credit adjustments, quarterly tax liability, deposits, and balance or overpayment. The exact 2026 line references, Schedule A entries, and credit-reduction calculations should come from the final 2026 package.

When does the $500 quarterly FUTA deposit threshold apply?

Form 940 is annual, but the employer computes its FUTA liability by quarter. Under 2026 IRS Publication 15, a quarter's liability of $500 or less need not be deposited yet; carry it into the next quarter. When the current quarter's liability plus undeposited carryover is more than $500, deposit the accumulated amount by the last day of the month after that quarter ends, subject to the normal weekend and legal-holiday rule. Exactly $500 is still carryable. A required federal tax deposit uses an electronic funds transfer method accepted by the IRS, not a mailed Form 940 payment.

In the 12-worker example, Q1 FUTA wages are $72,000 (12 × $6,000), so Q1 liability at 0.6% is $432. Because $432 is no more than $500, carry it. Q2 adds only $12,000 of FUTA wages (12 × the remaining $1,000) and $72 of tax. The $432 carry plus $72 current liability is $504, which exceeds $500. The employer deposits $504 by July 31, 2026 for this Q2 threshold crossing. Q3 and Q4 add no ordinary FUTA in this simplified illustration, assuming no further taxable workers or credit-reduction adjustment. A later 2026 credit-reduction determination could change the final-year result and fourth-quarter deposit requirement.

If Q4 liability plus any undeposited carry remains $500 or less, Publication 15 permits the employer to deposit or pay it with the timely Form 940; if more than $500, it must be deposited by the return's regular due date. Credit-reduction liability, when applicable, is included in the fourth-quarter deposit computation. Payment dates and deposit confirmations should be kept apart from liability-quarter figures: a deposit made later does not move the wage or liability into a later quarter.

How do you reconcile and file the annual Form 940?

1. Confirm the employer category. Apply the correct general, household, or farm test and check exemptions. Confirm the filing method assigned to this employer.
2. Build the employee-level calendar-year register. Sort paid wages by employee and pay date. Separate FUTA-exempt payments, current FUTA wages up to $7,000, and amounts above that employee's cap.
3. Reconcile state unemployment records. Match states of work, state-taxable wages, assessed and paid contributions, and payment timing. A state wage base may differ from the federal $7,000 base.
4. Calculate the federal credit with the final rules. Use the 2026 Form 940 instructions, including any timely-payment limitation, different state wage coverage, or final DOL credit reduction. Complete Schedule A if the employer is multistate or in a credit-reduction state.
5. Reconcile liability with deposits. Q1–Q4 liabilities should total the annual net FUTA amount under the final form rules. Compare required quarterly deposits and IRS-account credits with the tax due; investigate missing or wrong-period payments.
6. File the correct year's form. Form 940 is normally due January 31 after the tax year, moved to the next business day if the date is a weekend or legal holiday. Timely, full deposits generally allow filing by February 10. Because the 2026 instructions were not yet posted at this article's review date, verify the final 2026 filing date, form revision, payment options, and any IRS disaster relief before filing.

For the fictional employer, the annual ordinary FUTA amount is $504, and the required Q2 electronic deposit is also $504. If those assumptions remain true through year end and the payment is properly credited, there is no remaining ordinary FUTA balance. The employer must still file the annual return if required. A zero balance is not evidence that a required deposit was timely.

Common Form 940 and FUTA questions

Does FUTA appear as an employee pay-stub deduction?

No. The IRS says only the employer pays federal FUTA. A state-specific employee unemployment contribution may be a different line; identify the jurisdiction and code before judging it.

Is the FUTA wage base the same as the Social Security base?

No. FUTA uses the first $7,000 of covered wages per employee in 2026; Social Security has a separate 2026 wage base of $184,500. The two taxes also have different payers and reporting forms.

Can an employer always multiply total payroll by 0.6%?

No. First remove FUTA-exempt payments and per-employee wages above $7,000, then determine the actual state-tax credit and any credit reduction. The 0.6% rate requires the full 5.4% credit assumption.

What if a 2026 credit-reduction state appears later?

Recompute the credit and fourth-quarter liability using the final DOL determination and 2026 Form 940 Schedule A. The DOL says final current-year reductions are determined in November; a provisional list is not a final tax rate.

Sources reviewed October 2, 2026: IRS Publication 15 (2026), section 14; IRS Form 940 instructions (2025 revision available at review); and the U.S. Department of Labor FUTA credit-reduction page. All employee counts, wages, state-credit conditions, and deposits in the example are fictional. This is a payroll-reconciliation guide, not a filed return for a real employer.