File Form 940 with the IRS, then request a payment plan if you owe
You file Form 940 (the federal unemployment tax return) with the IRS the same way whether you can pay immediately or not. Mail it to the IRS address for your state, or e-file it through an approved tax software or tax professional. The filing deadline is January 31 of the year after the tax year ends — for example, January 31, 2025 for the 2024 tax year. Filing on time protects you from failure-to-file penalties, even if you cannot pay the full amount due.
Do not skip filing because you cannot pay. The IRS charges a failure-to-file penalty (usually 5% per month) that is much steeper than the failure-to-pay penalty (0.5% per month). Filing without payment, then setting up a payment plan afterward, costs you far less than not filing at all.
Key Takeaways
- File Form 940 by January 31 with the IRS, whether or not you can pay the balance due at the time of filing.
- The IRS assesses a failure-to-file penalty of roughly 5% per month if you do not file by the deadline, which is much larger than the failure-to-pay penalty.
- After you file, you can request a short-term extension (up to 120 days) or set up a payment plan through the IRS website, by phone, or by mail.
- If you owe $50,000 or less, you can set up an installment agreement online without calling or mailing forms.
- Interest accrues daily on any unpaid balance from the original due date, regardless of which payment plan you choose.
How to file Form 940 without paying immediately
Complete Form 940 as you normally would, reporting all wages and unemployment tax withheld. Include your calculation of the tax owed. When you submit the form — whether by mail or e-file — you do not need to include payment. The IRS will accept the filing and send you a bill for the amount due.
If you e-file, the software will ask whether you are paying with the return. Select no, and proceed. If you mail the form, simply do not enclose a check. The IRS processes the filing and generates a notice of the balance owed, which arrives within a few weeks.
Request a short-term payment extension from the IRS
If you need a few months to gather funds, you can request an automatic extension of up to 120 days to pay. This does not reduce what you owe, but it delays the failure-to-pay penalty clock. You can request this extension online through the IRS website (IRS.gov), by phone at 1-800-829-1040, or by mailing Form 9465 (Installment Agreement Request).
The online request takes minutes and requires your employer identification number (EIN), the tax year, and the amount owed. The IRS will confirm the extension immediately. Interest still accrues on the unpaid balance during the extension period, but you avoid the additional penalty for late payment during those 120 days.
Set up a payment plan (installment agreement) with the IRS
If you cannot pay within 120 days, you can enter into a formal installment agreement with the IRS. This allows you to pay the full amount in monthly installments over a longer period. There are two types: short-term (up to 180 days) and long-term (more than 180 days).
For amounts of $50,000 or less, you can set up an online payment plan through IRS.gov without mailing forms or calling. You will need your EIN, the tax year, and the amount owed. The IRS charges a setup fee (typically $31 to $225, depending on the method and amount) and a monthly payment amount you choose. Interest and penalties continue to accrue until the balance reaches zero.
For amounts over $50,000, you must contact the IRS by phone (1-800-829-1040) or mail Form 9465 with a financial statement. A revenue officer will work with you to establish a payment schedule.
What happens if you file late or miss the January 31 deadline
If you file Form 940 after January 31, the IRS assesses a failure-to-file penalty starting immediately. This penalty is 5% of the unpaid tax for each month (or part of a month) that the return is late, up to 25% total. This penalty applies even if you have a valid reason for the delay and even if you cannot pay.
Filing late and unpaid is more expensive than filing on time without payment. If you realize you will miss the deadline, file as soon as possible and then request a payment plan. The sooner you file, the smaller the penalty.
How interest and penalties work on unpaid Form 940 tax
The IRS charges interest on any unpaid balance from the original due date (January 31). The interest rate changes quarterly and is set at the federal short-term rate plus 3%. As of 2024, the rate is 8% annually, but this varies. Interest accrues daily and compounds, meaning you pay interest on the interest.
In addition to interest, the IRS charges a failure-to-pay penalty of 0.5% per month on the unpaid balance. If you set up a payment plan, this penalty is reduced to 0.25% per month. Both interest and the reduced penalty continue until you pay the full balance.
The longer you wait to pay, the more interest and penalties accumulate. A $5,000 balance unpaid for a year will grow by roughly $400 to $500 in interest and penalties alone.
Payment methods after you file Form 940
Once you have filed Form 940 and set up a payment plan, you can pay through several channels. The IRS accepts payments online through IRS.gov (using Direct Pay or the Electronic Federal Tax Payment System), by phone, by mail, or through an approved payment processor. Online payment is fastest and shows as received within one business day.
If you are on an installment agreement, your monthly payment is due on the date you agreed to. Missing a payment can trigger default and force you to pay the full remaining balance immediately. Set up automatic payments (ACH debit from your bank account) to avoid missing a due date.
Frequently Asked Questions
Can I file Form 940 without an EIN?
No. Form 940 requires your employer identification number. If you do not have an EIN, you must obtain one from the IRS before filing. You can apply for an EIN online at IRS.gov, by phone, or by mail; online applications are processed immediately.
What if I file Form 940 but the IRS says I owe more after an audit?
If the IRS audits your return and assesses additional tax, they will send you a notice with the new amount due. You can then request a payment plan for the additional balance. The same rules apply: file first, pay second, request a plan if needed.
Do I have to pay the setup fee for an installment agreement?
Yes, the IRS charges a setup fee for installment agreements, typically $31 to $225. The fee is added to your total balance owed. If you set up the agreement online, the fee is lower than if you set it up by phone or mail.
What happens if I cannot make my monthly installment payment?
Contact the IRS immediately. You can request a temporary delay, modify the payment amount, or request a new agreement. If you miss a payment without contacting the IRS, the agreement may default and the full remaining balance becomes due.
Can I file Form 940 electronically if I owe money?
Yes. E-filing is available whether you are paying or not. When you e-file, the software asks if you are paying with the return; select no and continue. E-filing is faster than mailing and reduces the chance of processing errors.