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Department of the Treasury
Internal Revenue Service
2023
Instructions for Form 940
Employer's Annual Federal Unemployment (FUTA) Tax Return
Section references are to the Internal Revenue Code Certification program for professional employer or-
unless otherwise noted. ganizations (PEOs). The Stephen Beck, Jr., Achieving a
Better Life Experience Act of 2014 required the IRS to
Future Developments establish a voluntary certification program for PEOs.
PEOs handle various payroll administration and tax
For the latest information about developments related to reporting responsibilities for their business clients and are
Form 940 and its instructions, such as legislation enacted typically paid a fee based on payroll costs. To become and
after they were published, go to IRS.gov/Form940. remain certified under the certification program, certified
professional employer organizations (CPEOs) must meet
What's New various requirements described in sections 3511 and
7705 and related published guidance. Certification as a
Credit reduction state. A state that hasn't repaid money CPEO may affect the employment tax liabilities of both the
it borrowed from the federal government to pay CPEO and its customers. A CPEO is generally treated for
unemployment benefits is called a credit reduction state. employment tax purposes as the employer of any
The U.S. Department of Labor determines these states. If individual who performs services for a customer of the
an employer pays wages that are subject to the CPEO and is covered by a contract described in section
unemployment tax laws of a credit reduction state, that 7705(e)(2) between the CPEO and the customer (CPEO
employer must pay additional federal unemployment tax contract), but only for wages and other compensation paid
when filing its Form 940. to the individual by the CPEO. To become a CPEO, the
For 2023, there are credit reduction states. If you paid organization must apply through the IRS Online
any wages that are subject to the unemployment Registration System. For more information or to apply to
compensation laws of a credit reduction state, your credit become a CPEO, go to IRS.gov/CPEO.
against federal unemployment tax will be reduced based For wages paid to a work site employee, a CPEO is
on the credit reduction rate for that credit reduction state. eligible for the credit for state unemployment tax paid to a
Use Schedule A (Form 940) to figure the credit reduction. state unemployment fund, whether the CPEO or a
For more information, see the Schedule A (Form 940) customer of the CPEO made the contribution. In addition,
instructions or go to IRS.gov. a CPEO is allowed the additional credit if the CPEO is
New Form 940 (sp) available in Spanish for tax year permitted, under state law, to collect and remit
2023. All employers, including employers in Puerto Rico contributions to the state unemployment fund with respect
and the U.S. Virgin Islands, have the option to file new to a work site employee. For more information on the
Form 940 (sp) for tax year 2023. Form 940-PR is no longer credit, see Credit for State Unemployment Tax Paid to a
available to file for tax years beginning after December 31, State Unemployment Fund, later.
2022. CPEOs must generally file Form 940 and Schedule R
Electronically filing an amended Form 940. Beginning (Form 940), Allocation Schedule for Aggregate Form 940
sometime in 2024, the IRS expects to make filing an Filers, electronically. For more information about a CPEO’s
amended Form 940 available as part of Modernized e-File requirement to file electronically, see Rev. Proc. 2023-18,
(MeF). Monitor IRS.gov for more information on 2023-13 I.R.B 605, available at IRS.gov/irb/
availability. 2023-13_IRB#REV-PROC-2023-18.
Outsourcing payroll duties. Generally, as an employer,
Reminders you're responsible to ensure that tax returns are filed and
Moving expense and bicycle commuting reimburse- deposits and payments are made, even if you contract
ments are subject to FUTA tax. The Tax Cuts and Jobs with a third party to perform these acts. You remain
Act (P.L. 115-97) suspends the exclusion for qualified responsible if the third party fails to perform any required
moving expense reimbursements from your employee's action. Before you choose to outsource any of your payroll
income under section 132 and the deduction from the and related tax duties (that is, withholding, reporting, and
employee's income under section 217, as well as the paying over social security, Medicare, FUTA, and income
exclusion for qualified bicycle commuting reimbursements taxes) to a third-party payer, such as a payroll service
from your employee's income under section 132, provider or reporting agent, go to IRS.gov/
beginning after 2017 and before 2026. Therefore, moving OutsourcingPayrollDuties for helpful information on this
expense and bicycle commuting reimbursements aren't topic. If a CPEO pays wages and other compensation to
exempt from FUTA tax during this period. Don't include an individual performing services for you, and the services
moving expense or bicycle commuting reimbursements on are covered by a CPEO contract, then the CPEO is
Form 940, line 4. For more information about fringe generally treated for employment tax purposes as the
benefits, see Pub. 15-B. employer, but only for wages and other compensation
Nov 28, 2023 Cat. No. 13660I
