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You paid $20,000 in wages to each of three employees in State A. State A is subject to credit reduction at a rate of 0.006 (0.6%). Because you paid wages in a state that is subject to credit reduction, you must complete Schedule A and file it with Form 940.
Use Schedule A (Form 940) to figure the credit reduction. For more information, see the Schedule A (Form 940) instructions or go to IRS.gov.
You only need to complete Schedule A, Form 940 if you’re a multi-state employer or you paid wages in a credit reduction state.
Schedule A (Form 940) is a supplemental form that you attach to Form 940. You use Schedule A to determine your annual FUTA tax. This worksheet is especially important if you live in a credit reduction state. To get you started, let’s break down FUTA taxes and Schedule A.
Learn how to complete the IRS Form 940 to report federal unemployment tax payments and taxes owed, as well as information about state unemployment taxes.
Complete and attach Schedule A (Form 940) if you are either a multi-state employer who paid unemployment taxes in more than one state or if you paid taxes in a state subject to a credit reduction. The credit reduction states for 2023 are California, New York, and the Virgin Islands.
Form 940, Employer’s Annual Federal Unemployment Tax Return, is an IRS form that employers use to report any FUTA tax payments they’ve made over the course of the calendar year, as well as any outstanding FUTA payments they have yet to make.
Schedule A must be filed along with Form 940 if: You are a multi-state employer. You paid FUTA taxable wages that were also subject to state unemployment taxes in the credit reduction state (you’re subject to credit reduction).
In order to calculate the amount due on Form 940, employers use a Schedule A document. The first $7,000 paid to each employee during the year, besides any compensation considered exempt from FUTA, is taxable for unemployment tax purposes.
Use Schedule A (Form 940) to figure your annual Federal Unemployment Tax Act (FUTA) tax for states that have a credit reduction on wages that are subject to the unemployment compensation laws. Schedule A (Form 940) PDF