Are 940 Payments Due Quarterly? | Tax Timing Truths

Understanding the Basics of Form 940 Payments

Form 940 is the Employer’s Annual Federal Unemployment (FUTA) Tax Return. It’s a crucial tax form employers use to report and pay unemployment taxes to the federal government. These taxes fund state workforce agencies, which provide unemployment compensation to workers who lose their jobs.

The question “Are 940 Payments Due Quarterly?” arises because many employers are familiar with quarterly payroll tax deposits for Social Security and Medicare, but FUTA works a little differently. While Form 940 itself is filed once a year, the payment schedule depends on your FUTA tax liability throughout the year.

Annual Filing Versus Payment Frequency

Employers file Form 940 annually by January 31st of the following year. This filing reports the total FUTA tax liability for the prior calendar year. However, paying this tax can be either annual or quarterly depending on how much FUTA tax you owe.

If your FUTA tax liability is less than $500 for the entire year, you can pay it in full when you file your Form 940. No quarterly payments are required in this case.

But if you expect to owe more than $500 in FUTA taxes during the year, you must make deposits periodically throughout the year. That’s where quarterly payments often come into play.

When Are FUTA Payments Required Quarterly?

The IRS requires employers to deposit FUTA taxes on a quarterly basis if their cumulative FUTA tax liability exceeds $500 at any point during a quarter. This means that once your owed taxes hit that threshold, you must start making deposits by the end of that quarter.

The deposit deadlines for these quarterly payments align closely with standard payroll tax deposit schedules:

• 1st Quarter: January 1 – March 31; deposit due by April 30
• 2nd Quarter: April 1 – June 30; deposit due by July 31
• 3rd Quarter: July 1 – September 30; deposit due by October 31
• 4th Quarter: October 1 – December 31; deposit due by January 31 (of next year)

If you fail to make these deposits when required, penalties and interest can accrue, increasing your overall tax burden.

The Mechanics of Quarterly Deposits

When your FUTA liability surpasses $500 during any quarter, you must estimate how much FUTA tax you owe for that quarter and send a payment by the deadline. These payments are made using the Electronic Federal Tax Payment System (EFTPS) or other IRS-approved methods.

You continue making these deposits each quarter until your total estimated FUTA tax for the year is paid off. Once all estimated taxes have been deposited, any remaining balance is paid with your annual Form 940 filing.

This system helps spread out your payments instead of facing one large lump sum at year’s end.

The Calculation Behind FUTA Taxes and Payment Triggers

FUTA tax is calculated based on employee wages subject to unemployment tax. The standard FUTA rate is 6% on the first $7,000 paid to each employee annually. However, most employers receive a credit of up to 5.4% when they pay state unemployment taxes timely, reducing their effective federal rate to just 0.6%.

Here’s how it breaks down:

Tax Component	Description	Rate/Amount
Gross Wages Subject to FUTA	The first $7,000 paid per employee per year	$7,000 per employee
Federal Unemployment Tax Rate	Standard rate before state credit application	6%
Maximum State Credit	If state unemployment taxes are paid timely and fully	5.4%
Effective Federal Rate (after credit)	The typical rate most employers pay federally	0.6%
Maximum FUTA Tax Per Employee Annually	Total federal unemployment tax owed per employee after credit	$42 (0.6% × $7,000)

Because of this relatively low effective rate and wage cap, many small employers don’t exceed $500 in total annual FUTA liability and thus don’t have quarterly payment obligations.

A Practical Example of Quarterly Payment Requirements

Imagine an employer with five employees who each earn more than $7,000 annually:

• Total taxable wages: $7,000 × 5 = $35,000.
• Total FUTA tax before state credit: $35,000 × 6% = $2,100.
• Total state credit: up to $35,000 × 5.4% = $1,890.
• Total federal net FUTA due: $2,100 – $1,890 = $210.

In this case, because total annual federal unemployment taxes are only $210 (less than $500), no quarterly deposits are required — payment can be made with Form 940 filing.

However, if an employer has more employees or higher wages pushing their total federal unemployment tax over $500 during any quarter, they must begin depositing those amounts quarterly.

The Role of State Unemployment Taxes in Determining Payments

State unemployment insurance (SUI) systems vary widely in rates and wage bases but directly influence how much federal FUTA credit an employer receives.

If an employer fails to pay state unemployment taxes timely or in full during a quarter or year:

• The full federal rate of 6% applies without any credit reduction.

This often results in higher federal unemployment taxes owed and potentially triggers quarterly payment requirements even if an employer’s wages remain constant.

Employers should monitor both their state and federal liabilities closely since delays or underpayments at the state level can increase their overall federal burden significantly.

The Impact of Credit Reduction States on Quarterly Payments

Some states undergo “credit reduction” periods imposed by the IRS when their unemployment trust funds fall below certain levels. During these times:

• The maximum credit employers receive against their FUTA tax decreases from the usual 5.4%, increasing effective federal rates.

This means employers in these states might owe more in FUTA taxes annually and could cross that critical $500 threshold faster—thus triggering mandatory quarterly deposits even if they didn’t previously have them.

Employers located in credit reduction states need extra vigilance about their payment schedules to avoid penalties.

The Penalties for Missing Quarterly Deposits or Filing Deadlines

Failing to make timely deposits or filing Form 940 late can lead to costly penalties imposed by the IRS:

• Failure-to-Deposit Penalty: Ranges from 2% up to 15% depending on how late payments are made.

• Failure-to-File Penalty: Typically equals 5% of unpaid tax per month up to a maximum of 25%.

• Interest Charges: Accrue daily on unpaid amounts until fully settled.

These penalties add up quickly and can severely impact an employer’s cash flow if ignored or misunderstood.

Setting reminders for quarterly deadlines and using EFTPS for electronic payments helps avoid these issues entirely.

Simplifying Compliance Through Automation Tools

Many payroll service providers automatically calculate payroll-related taxes—including FUTA—and schedule necessary deposits based on real-time wage data.

Using such services reduces human error risks related to miscalculations or missed deadlines while ensuring compliance with IRS regulations regarding “Are 940 Payments Due Quarterly?”

Employers who handle payroll manually should consider adopting software solutions or consulting professionals specializing in payroll compliance for peace of mind.

Frequently Asked Questions

Are 940 Payments Due Quarterly or Annually?

Form 940 is filed annually, but payments depend on your FUTA tax liability. If you owe less than $500 for the year, you pay once when filing. If your liability exceeds $500, quarterly deposits are required throughout the year.

When Are 940 Payments Due Quarterly Required?

The IRS mandates quarterly 940 payments if your FUTA tax liability surpasses $500 during any quarter. Once this threshold is met, you must deposit taxes by the end of that quarter according to IRS deadlines.

How Are 940 Payments Due Quarterly Calculated?

When quarterly payments are required, you estimate your FUTA tax owed for that period and submit the payment by the deadline. Accurate estimates help avoid penalties and interest from underpayment.

What Happens If 940 Payments Due Quarterly Are Missed?

Failing to make required quarterly 940 payments can result in penalties and interest charges. These additional costs increase your overall tax burden and may trigger IRS enforcement actions.

Can Employers Avoid 940 Payments Due Quarterly?

If your total FUTA tax liability remains under $500 annually, you can avoid quarterly deposits and pay in full when filing Form 940. Monitoring your tax liability helps determine if quarterly payments apply.

The Bottom Line – Are 940 Payments Due Quarterly?

To sum it up: Form 940 itself is filed once yearly by January 31st reporting all annual federal unemployment liabilities. But whether payments occur quarterly depends entirely on whether your cumulative FUTA tax liability exceeds $500 during any calendar quarter.

If it does not cross that threshold anytime during the year—payments happen once alongside filing Form 940. If it does exceed $500 at some point—quarterly deposits become mandatory until all estimated amounts are paid off ahead of final reconciliation with Form 940 filing.

Understanding this distinction helps employers avoid surprises at year-end and ensures smooth cash flow management throughout the year while staying compliant with IRS rules about Are 940 Payments Due Quarterly?

With proper tracking of wages subject to FUTA and awareness of state credits or reductions affecting rates—and using available tools—you’ll never miss a beat when it comes time to pay those crucial employment taxes promptly and correctly.