Frequently Asked Questions for Form 940 and Schedule A (Form 940)
Q1: An employer pays wages in a state that is designated a credit reduction state. Some, but not all, of the employees' wages are excluded from State Unemployment Insurance (SUI) tax. None of the employees' wages are exempt from FUTA tax. Should the excluded SUI wages be included on Form 940?
A1: The excluded SUI wages may or may not be included on Form 940 depending on the outcome from the worksheet for line 10, included in the Instructions for Form 940.
Line 10 of Form 940 provides in part that, “If SOME of the taxable FUTA wages you paid were excluded from state unemployment tax, . . . , complete the worksheet in the instructions.” The amount from line 7 of the worksheet is entered on line 10 of Form 940. Also see question 2 below regarding credit reduction and wages excluded from SUI tax.
Q2: What should be included on Schedule A (Form 940) if an employer paid $5,000 in FUTA wages in a credit reduction state, and $1,000 of those wages are excluded from State Unemployment Insurance (SUI) tax?
A2: A total of $4,000 would be included on Schedule A (Form 940). Wages that are excluded from SUI tax should not be included on Schedule A (Form 940).
Q3: An employer paid wages in a credit reduction state; however, all of the wages paid were exempt from FUTA tax and were also excluded from State Unemployment Insurance (SUI) tax.
In this situation, is the taxpayer required to list the state on line 1a of Form 940? Or can line 1a be left blank?
A3: Line 1a of Form 940 only requires that the information be entered, “If you had to pay state unemployment tax in one state only.” So if the employer “paid” the state unemployment tax but later found out it was excluded from tax in that state, the information on line 1a is required. If the employer never paid the state unemployment tax, line 1a should be left blank.
Q4: If a state is listed on line 1a of Form 940, is Schedule A (Form 940) required to be filed?
A4: If the state listed on line 1a of Form 940 is also a credit reduction state so that line 2 of Form 940 is checked, and the employer paid SUI tax on wages paid in that state, Schedule A (Form 940) is required. See Q&A2 and the Schedule A (Form 940) instructions for more information. Wages that are excluded from SUI tax should not be included on Schedule A (Form 940).
