Form 940 Schedule R

Understanding the Schedule R (Form 940)

The Internal Revenue Service (IRS) uses Form 940 to determine the annual Federal Unemployment Tax Act (FUTA) tax owed by employers. For multi-state employers or those with multiple entities, Schedule R (Form 940) becomes a vital tool. It's primarily used to allocate the aggregate FUTA liability shown on Form 940 to the individual state(s) where the employer carries out their business.

Important to remember

After completing Schedule R (Form 940), attach it to Form 940 when filing. Ensuring it's correct and precise is crucial, as any inaccuracies can result in paying more or less FUTA tax than required which could lead to penalties.

How to Fill Out Form 940 Schedule R

The question about filling out the form ranks high on the anticipation charts for many employers, as it’s a crucial but oft-confusing process. The improper filling could lead to complications or discrepancies during tax assessment. However, once you know the steps, it's quite straightforward:

1. Start by inputting your EIN (Employer Identification Number) and full name in the top of the box. 
2. Move on to the next section. Here, you will need to provide information about the type of filer you are. 
3. Check the box that applies to you, and if necessary, add your business's name and address in the allocated boxes.
4. Navigate to the next section, and fill the table given with the necessary information. Write down the name of the state, the Employer's state Identification number, and, if applicable, the credit reduction rate as per the sequence and guidelines in the form.
5. Now, if you had different FUTA tax rates during the year, you need to fill next part. Add the periods, the FUTA rates, and payments that were paid at each rate.
6. Next, you will have to calculate your total FUTA tax after all allowable adjustments have been made. Make sure to add the figures correctly.
7. Now come to the final section 6, labeled as "Total FUTA tax." Here calculate your total FUTA tax by adding the four components and pen down the amount.
8. Lastly, check through the entire form to ensure all the entered information is accurate before submitting the form.
9. Once you're through, you may save a copy, print, download, or share this form for your records.

Common mistakes to avoid

Filling the form can occasionally lead to confusion which sometimes results in errors. The most common error is incorrect state coding. Always ensure to supply the correct state code for every team member's primary work location. Other common mistakes are overestimated exemptions and under-reported taxable wages. This can lead to an underpayment or overpayment of FUTA taxes, which might involve penalties or delays in refunds.