Form 940 Schedule A

When to Use Schedule A (Form 940)

1. Multiple States: If you paid state unemployment tax in more than one state.
2. Credit Reduction State: If you paid wages in any state that is subject to credit reduction.

Multi-state Employers

Multi-state employers are those who pay unemployment taxes in multiple states because they hire employees from various locations. On line 1b of Form 940, check the box to identify yourself as a multi-state employer.

Credit Reduction on Form 940

To provide unemployment benefits, states need sufficient funds. If a state lacks funds, it borrows from the federal government. States must repay these loans within a specified period, or they risk losing their credit. Employers in these states face a reduction in their FUTA tax credit. The Department of Labor identifies states with credit reductions. Employers in these states must pay additional federal unemployment tax when filing Form 940.

Credit Reduction Rates

Below are the credit reduction rates for 2022 and 2023:

How to Add Schedule A Information to IRS Form 940

1. Multi-state Employers: Check the box on line 1b of Form 940. Fill out Schedule A and attach it to your Form 940.
2. Credit Reduction States: Check the box on line 2 of Form 940. Complete Schedule A and attach it to your Form 940.

Step-by-Step Guide to Filling Out Schedule A

Step 1: Employer Information

• Employer Identification Number (EIN)
• Name (as shown on Form 940)

Step 2: Mark States

• Mark an "X" next to each state (including D.C., Puerto Rico, and the U.S. Virgin Islands) where you paid state unemployment taxes this year, even if the credit reduction rate is zero.
• Ensure you have a state reporting number for each state. If not, contact the state unemployment agency.

Step 3: Credit Reduction

• Identify states with a credit reduction rate above zero (e.g., California 0.6%, New York 0.6%, U.S. Virgin Islands 3.9%).
• Enter the total FUTA taxable wages paid in these states in the "FUTA Taxable Wages" box, excluding wages not subject to state unemployment tax.
• Multiply the FUTA taxable wages by the state’s credit reduction rate.
• Enter the result in the "Credit Reduction" box.

Step 4: Total Credit Reduction

• Add up all amounts in the "Credit Reduction" boxes.
• Enter the total in the "Total Credit Reduction" box and on Form 940, line 11.

State Abbreviations

The following table provides the two-letter postal abbreviations used on Schedule A:

Conclusion

Ensure you follow these steps to correctly complete Form 940 Schedule A. Proper compliance helps avoid penalties and ensures accurate tax reporting.