Form 940 for 2025: Credit Reduction States and Their Updated Rates

Changes in the 940 Form for 2025

For the 2025 tax year, the IRS has made several changes to Form 940, and it's crucial to be aware of these changes before filing your Form 940.

• Increase in Credit Reduction Rates:

  The IRS has increased the credit reduction rates for certain states, resulting in higher Federal Unemployment Tax Act (FUTA) liabilities for employers in those jurisdictions. The updated rates apply to California (1.2%) and the U.S. Virgin Islands (4.5%).

• New Identification Requirement for Aggregate Return Filers

  Form 940 now includes a new section, “Aggregate Return Filers Only”. Section 3504 agents, CPEOs, and other third-party filers must now identify their filing type when submitting an aggregate return.

• Direct Deposit Available for Form 940 Refunds

  The IRS now allows direct deposit for Form 940 refunds. Businesses can choose to have overpayments deposited into their bank account instead of receiving a check or applying the amount to the next return.

• Making Balance Due Payment Electronically

  Balance due payments associated with Form 940 must now be made electronically.

  This change aligns with federal efforts to modernize and secure payment processing.

• Form 940 Return Transcripts Available Online

  Businesses can now access Form 940 return transcripts electronically (for tax years 2023 and later) through their IRS Business Tax Account. This makes record-keeping and verification easier.

What are the Credit Reduction States in Form 940 for 2025?

Credit Reduction State:

Credit Reduction States are those states that have borrowed funds from the federal government to cover their unemployment insurance programs but have not repaid the borrowed amount within the specified time frame. When a state fails to repay these federal loans on time, it is classified as a credit reduction state.

Employees in these states are subject to additional Federal Unemployment Tax Act (FUTA) obligations. This additional tax is imposed to help repay the outstanding federal loans that the state has not yet settled.

Credit Reduction Rates for 2025

To indicate this credit reduction, you should check the appropriate box on line 2 of Form 940 and complete 940 Schedule A.

If you are a multi-state employer or paid wages to employees in any of the credit reduction states listed above, click here to learn about your additional requirements along with IRS Form 940.

What is the filing deadline for Form 940 for 2025?

Form 940, the Federal Unemployment Return, must be filed annually. The deadline to file Form 940 with the IRS for the 2025 tax year is February 02, 2026.

However, you must deposit the FUTA tax to the IRS if certain tax liability criteria are met. Click here to learn more about the
940 deposit due dates.

Never Miss Your 940 Deadline!

Receive timely updates on IRS changes and deadline reminders from TaxBandits. File Form 940 with TaxBandits and avoid incurring late filing penalties.

How to simply your 940 filing

Form 940 online filing with TaxBandits is easy and accurate. TaxBandits has updated the filing process to incorporate the latest IRS updates, including essential attachments such as the Form 940 line 10 worksheet, Form 940 Schedule A, and
Form 8453-EMP.

TaxBandits ensure simplified filing with automatic tax calculations and error checks using the IRS Business Rules.

To know the simple steps to e-file your Form 940 with TaxBandits, click here.