IRS Form 940 (Schedule R) – IRS Forms, Instructions, Pubs 2026 – In the complex world of federal unemployment taxes, IRS Form 940 plays a crucial role for employers reporting their annual Federal Unemployment Tax Act (FUTA) obligations. For certain aggregate filers, attaching Schedule R (Form 940) is essential to properly allocate taxes, wages, and credits across multiple clients. This allocation schedule ensures accurate reporting and compliance, helping third-party payors and certified organizations avoid penalties. Whether you’re a section 3504 agent or a Certified Professional Employer Organization (CPEO), understanding how to use Form 940 Schedule R can streamline your tax filing process. In this article, we’ll break down what it is, who needs it, and how to complete it step by step.
What Is IRS Form 940 Schedule R?
IRS Form 940 Schedule R, officially titled the Allocation Schedule for Aggregate Form 940 Filers, is a supplemental form used to break down the aggregate information reported on Form 940. It allocates wages, taxes, credits, deposits, and payments to individual clients or employers, providing the IRS with a clear reconciliation of the totals on the main Form 940. This schedule is particularly important for aggregate filers who handle FUTA tax reporting for multiple entities, ensuring each client’s contributions are accurately reflected.
The form includes spaces for up to 15 clients on the main page, with Continuation Sheets available for additional entries if needed. It also requires reporting information for the filer’s own employees and subtotals to match the aggregate Form 940. The latest revision of Schedule R (Form 940) is from December 2024, and it’s designed to simplify the reporting process for third-party aggregate filers.
Who Needs to File Form 940 Schedule R?
Not every employer filing Form 940 requires Schedule R. This form is mandatory for aggregate Form 940 filers, which include:
- Section 3504 Agents: These are IRS-approved agents acting on behalf of home care service recipients. To qualify, agents must file Form 2678 (Employer/Payer Appointment of Agent) and receive IRS approval, except for state or local government agencies under Rev. Proc. 2013-39. Aggregate filing is allowed for these agents.
- Certified Professional Employer Organizations (CPEOs): CPEOs are required to use Schedule R when filing aggregate Form 940. They must apply for certification through the IRS Online Registration System and meet requirements under sections 3511 and 7705. CPEOs handle payroll and tax reporting for clients under specific contracts and are treated as the employer for employment tax purposes.
If you’re filing an aggregate Form 940 for multiple clients, you must attach Schedule R to identify the third-party filer and allocate tax liabilities. For amendments to an aggregate Form 940, include Schedule R only for clients with adjustments. Standard employers filing individually do not need this schedule.
When and How to File Schedule R with Form 940?
Schedule R must be filed annually with your aggregate Form 940 by the due date of Form 940, which is typically January 31 of the following year (or the next business day if it falls on a weekend or holiday). If the due date is extended for Form 940, it applies to Schedule R as well.
- Filing Methods: Section 3504 agents can file electronically or by paper. CPEOs are generally required to file Form 940 and Schedule R electronically, with limited exceptions outlined in Rev. Proc. 2023-18.
- Attachments: Always attach Schedule R, including any Continuation Sheets, to your Form 940. On Form 940, use the “Aggregate Return Filers Only” section to identify yourself as a section 3504 agent, CPEO, or other third party.
For the calendar year, ensure the year on Schedule R matches Form 940. Download the latest PDF version from the IRS website: https://www.irs.gov/pub/irs-pdf/f940sr.pdf.
Step-by-Step Guide to Completing IRS Form 940 Schedule R
Before starting, read the instructions on the form and ensure your EIN and business name match exactly those on Form 940. Type or print within the boxes, and do not use commas for amounts over 999.99.
- Enter Business Information: At the top, input your EIN, name, and check the box for your filer type (Section 3504 Agent or CPEO).
- Calendar Year: Enter the year matching Form 940.
- Client and Employee Information (Lines 1-15): For each client, complete a separate line with allocations from Form 940. If more than 15 clients, use Continuation Sheets.
- Subtotals (Line 16): Add amounts from lines 1-15.
- Continuation Sheet Subtotals (Line 17): If applicable, enter combined subtotals from all Continuation Sheets.
- Your Employees (Line 18): Report the same allocations for your own employees.
- Totals (Line 19): Add lines 16, 17, and 18. These must match the corresponding lines on Form 940 (e.g., line 7 for taxable FUTA wages). Correct any discrepancies before submission.
Key Columns in Schedule R and What to Enter
Schedule R is structured with columns (a) through (h) for detailed allocations. Here’s a breakdown:
| Column | Description | What to Enter |
|---|---|---|
| (a) | Client’s EIN | The employer identification number of the client. |
| (b) | State Abbreviation | From Form 940, line 1a, or Schedule A (Form 940). |
| (c) | Type of Wages (CPEO Use Only) | Codes A, B, C, or D based on the type of wages paid (e.g., A for section 3511(a) wages). Use multiple lines if needed for different types. |
| (d) | Total Taxable FUTA Wages | Allocated from Form 940, line 7. |
| (e) | Total Adjustments to FUTA Tax | Allocated from Form 940, line 9 or 10. |
| (f) | Credit Reduction Amount | Allocated from Form 940, line 11. |
| (g) | Total FUTA Tax After Adjustments | Allocated from Form 940, line 12. |
| (h) | Total FUTA Tax Deposits and Payments | Allocated from Form 940, line 13, plus any payment with the return. |
For CPEOs, column (c) is mandatory to specify wage types under relevant regulations. CPEOs may also claim credits for state unemployment taxes paid, even if remitted by the customer.
Common Mistakes and Tips for Compliance
Avoid errors by double-checking that totals on line 19 match Form 940. Common pitfalls include mismatched EINs, incorrect wage type codes, or forgetting Continuation Sheets for excess clients. Always use the most current form version to comply with updates, such as credit reductions in certain states.
For CPEOs, notify the IRS of contract changes using Form 8973. Consult a tax professional if unsure, and visit IRS.gov for the latest guidance.
Resources and Further Reading
Download the PDF for Schedule R (Form 940) directly from the IRS: https://www.irs.gov/pub/irs-pdf/f940sr.pdf. For full instructions on Form 940, refer to the IRS publication at https://www.irs.gov/pub/irs-pdf/i940.pdf. Additional details on aggregate filing are available on the IRS website.
This guide is for informational purposes only and not tax advice. Always verify with the IRS or a qualified advisor for your specific situation.