Part 2 — Instruction 940 — Instructions for Form 940

If any line in Part 2 doesn’t apply, leave it blank.

3. Total Payments to All Employees Report the total payments you made during the calendar year on line 3. Include payments for the services of all employees, even if the payments aren’t taxable for FUTA. Your method of payment doesn’t determine whether payments are wages. You may have paid wages hourly, daily, weekly, monthly, or yearly. You may have paid wages for piecework or as a percentage of profits. Include the following.

Compensation, such as the following. —Salaries, wages, commissions, fees, bonuses, vacation allowances, and amounts you paid to full-time, part-time, or temporary employees.
Fringe benefits, such as the following. —Sick pay (including third-party sick pay if liability is transferred to the employer). For details on sick pay, see Pub. 15-A, Employer’s Supplemental Tax Guide. —The value of goods, lodging, food, clothing, and non-cash fringe benefits. —Section 125 (cafeteria) plan benefits.
Retirement/Pension, such as the following. —Employer contributions to a 401(k) plan, payments to an Archer MSA, payments under adoption

assistance programs, and contributions to SIMPLE retirement accounts (including elective salary reduction contributions). —Amounts deferred under a non-qualified deferred compensation plan.

Other payments, such as the following. —Tips of $20 or more in a month that your employees reported to you. —Payments made by a predecessor employer to the employees of a business you acquired. —Payments to nonemployees who are treated as your employees by the state unemployment tax agency.

Caution: Wages may be subject to FUTA tax even if they’re excluded from your state’s unemployment tax.

For details on wages and other compensation, see section 5 of Pub. 15-A.

Example

You had three employees. You paid $44,000 to Joan Rose, $8,000 to Sara Blue, and $16,000 to John Green.

$44,000 Amount paid to Joan

8,000 Amount paid to Sara

16,000 Amount paid to John

$68,000 Total payments to employees. You would enter this

amount on line 3.

4. Payments Exempt From FUTA Tax If you enter an amount on line 4, check the appropriate box or boxes on lines 4a through 4e to show the types of payments exempt from FUTA tax. You only report a payment as exempt from FUTA tax on line 4 if you included the payment on line 3.

Some payments are exempt from FUTA tax because the payments aren’t included in the definition of wages or the services aren’t included in the definition of employment. Payments exempt from FUTA tax may include the following.

Fringe benefits, such as the following. —The value of certain meals and lodging. —Contributions to accident or health plans for employees, including certain employer payments to a health savings account or an Archer MSA. —Payments for benefits excluded under section 125 (cafeteria) plans.
Group-term life insurance. For information about group-term life insurance and other payments for fringe benefits that may be exempt from FUTA tax, see Pub. 15-B.
Retirement/Pension, such as employer contributions to a qualified plan, including a SIMPLE retirement account (other than elective salary reduction contributions) and a 401(k) plan.
Dependent care, such as payments (up to $5,000 per employee, $2,500 if married filing separately) for a qualifying person’s care that allows your employees to work and that would be excludable by the employee under section 129.

Instructions for Form 940 (2025) 9

Other payments, such as the following. —All non-cash payments and certain cash payments for agricultural labor, and all payments to H-2A visa workers. See For Agricultural Employers , earlier, or Pub. 15. —Payments made under a workers’ compensation law because of a work-related injury or sickness. See section 6 of Pub. 15-A. —Payments for domestic services if you didn’t pay cash wages of $1,000 or more (for all domestic employees) in any calendar quarter in 2024 or 2025, or if you file Schedule H (Form 1040). See For Employers of Household Employees, earlier, or Pub.

926. —Payments for services provided to you by your parent, spouse, or child under the age of 21. See section 3 of Pub. 15. —Payments for certain fishing activities. See Pub. 334, Tax Guide for Small Business. —Payments to certain statutory employees. See section 1 of Pub. 15-A. —Payments to nonemployees who are treated as your employees by the state unemployment tax agency.

See section 3306 and its related regulations for more information about FUTA taxation of retirement plan contributions, dependent care payments, and other payments.

For more information on payments exempt from FUTA tax, see section 15 of Pub. 15.

Example

You had three employees. You paid $44,000 to Joan Rose, including $2,000 in health insurance benefits. You paid $8,000 to Sara Blue, including $500 in retirement benefits. You paid $16,000 to John Green, including $2,000 in health and retirement benefits.

$ 2,000 Health insurance benefits for Joan

500 Retirement benefits for Sara

2,000 Health and retirement benefits for John

$4,500 Total payments exempt from FUTA tax. You would enter

this amount on line 4 and check boxes 4a and 4c.

5. Total of Payments Made to Each Employee in Excess of $7,000 Only the first $7,000 you paid to each employee in a calendar year, after subtracting any payments exempt from FUTA tax, is subject to FUTA tax. This $7,000 is called the FUTA wage base.

Enter on line 5 the total of the payments over the FUTA wage base you paid to each employee during 2025 after subtracting any payments exempt from FUTA tax shown on line 4.

If you’re a successor employer... When you figure the payments made to each employee in excess of the FUTA wage base, you may include the payments that the predecessor made to the employees who continue to work for you only if the predecessor was an employer for FUTA tax purposes resulting in the predecessor being required to file Form 940.

Example for Successor Employers

During the calendar year, the predecessor employer paid $5,000 to Susan Jones. You acquired the predecessor’s business. After the acquisition, you employed Susan and paid Susan an additional $3,000 in wages. None of the amounts paid to Susan were payments exempt from FUTA tax.

$5,000 Wages paid by predecessor employer

3,000 Wages paid by you

$8,000 Total payments to Susan. You would include this amount on line 3.

$8,000 Total payments to Susan

7,000 FUTA wage base

$1,000 Payments made to Susan in excess of the FUTA wage base

5,000 Taxable FUTA wages paid by predecessor employer

$6,000 You would include this amount on line 5.

6. Subtotal To figure your subtotal, add the amounts on lines 4 and 5 and enter the result on line 6.

line 4

line 5

line 6

7. Total Taxable FUTA Wages To figure your total taxable FUTA wages, subtract line 6 from line 3 and enter the result on line 7.

line 3

line 6

line 7

Following Our Example

You had three employees. You paid $44,000 to Joan Rose, $8,000 to Sara Blue, and $16,000 to John Green, including a total of $4,500 in payments exempt from FUTA tax for all three employees. To determine the total payments made to each employee in excess of the FUTA wage base, the payments exempt from FUTA tax and the FUTA wage base must be subtracted from total payments. These amounts are shown in parentheses. Employees Joan Sara John Total payments to employees $44,000 $8,000 $16,000 Payments exempt from FUTA tax (2,000) (500) (2,000) FUTA wage base (7,000) (7,000) (7,000)

$35,000 $ 500 $ 7,000

Total of payments made to each employee in excess of the FUTA wage base. You would enter this amount on line 5.

$42,500

10 Instructions for Form 940 (2025)

8. FUTA Tax Before Adjustments To figure your total FUTA tax before adjustments, multiply line 7 by 0.006 and then enter the result on line 8.

line 7 x 0.006

line 8