Understanding IRS Form 940-B: Request for Verification of Credit Information Shown on Form 940

1. Introduction – What is Form 940-B?

IRS Form 940-B, officially titled “Request for Verification of Credit Information Shown on Form 940,” is a specialized federal tax document administered by the Internal Revenue Service (IRS), a bureau of the U.S. Department of the Treasury.

It is used in connection with federal unemployment tax compliance under the Federal Unemployment Tax Act (FUTA). Form 940-B serves as an official proof-of-credit document sent to state unemployment agencies to verify whether an employer paid state unemployment taxes (SUTA) on time and in the amounts claimed on their annual federal unemployment tax return.

2. Purpose of the Form – Why Does Form 940-B Exist?

When employers file annual Form 940, they generally claim a maximum tax credit of up to 5.4% against the standard 6.0% federal unemployment tax rate for payments made into state unemployment funds. This credit reduces an employer’s effective FUTA tax rate down to 0.6% ($42 per employee per year on the first $7,000 of wages).

To verify that employers actually paid these state taxes, the IRS compares employer Form 940 filings with computerized data sent directly by state unemployment agencies. If a discrepancy occurs—such as a missing payment record, an incorrect state account number, or a late payment—the IRS may disallow the 5.4% credit and issue a proposed tax increase notice.

Form 940-B solves this problem by providing a formal process to obtain official state certification. By having the state unemployment agency complete and sign Form 940-B, the employer provides conclusive “proof of credit” to the IRS, resolving the audit discrepancy and restoring the valid FUTA tax credit.

3. Who Needs to File / Use This Form

Form 940-B is not a form that employers routinely fill out during annual tax filing. Instead, it is used during discrepancy reviews or tax disputes by the following parties:

• Employers Facing IRS Discrepancies: Business owners who receive an IRS notice or proposed tax adjustment letter disallowing state unemployment credits claimed on Form 940.
• State Unemployment Agency Officers: Authorized state tax officials who examine state unemployment tax records, verify contribution amounts, sign the certification block, and return the form to the IRS or employer.
• Tax Professionals and CPAs: Payroll accountants and tax consultants assisting business clients in challenging proposed IRS FUTA adjustments.

4. Who Is Exempt / Not Required to File

You do not need to deal with Form 940-B in standard tax situations. You are exempt or not required to use Form 940-B if any of the following apply:

• Verified Employers: Businesses whose state unemployment tax contributions were automatically matched and verified by the IRS computer system without any discrepancies.
• Non-Employers: Sole proprietors, independent contractors, or businesses with no W-2 employees.
• Tax-Exempt Entities: Non-profit 501(c)(3) organizations or governmental bodies exempt from FUTA taxes.
• Employers Not Claiming SUTA Credits: Businesses that paid no state unemployment taxes or operated in states where no credit was claimed.

5. When to File

Form 940-B is an event-driven verification document rather than an annual recurring tax return. It is used when an employer receives an IRS discrepancy notice or proposed adjustment letter regarding Form 940.

When the IRS issues a proposed tax increase due to unverified SUTA credits, the employer is typically given a 90-day window to respond. During this 90-day period, the employer must submit Form 940-B to their state unemployment agency, obtain official verification, and send the certified document back to the IRS to stop the tax assessment.

6. Where and How to File

Form 940-B involves a three-way verification process between the IRS, the employer, and the state unemployment agency.

The employer or IRS submits Form 940-B to the state unemployment agency where employees performed services. An authorized state officer verifies state tax ledgers, fills out the certification section, signs the form, and returns it via mail or fax. Once certified by the state, the completed Form 940-B must be submitted directly to the specific IRS address or fax number as per instructions on your IRS discrepancy notice. Do not mail Form 940-B to general IRS tax return filing addresses.

7. Step-by-Step Instructions to Fill the Form

Form 940-B contains employer identification details, tax year payment columns, and a dedicated state agency certification block. The table below summarizes the key parts of the form.

Form Section	Section Name	Instruction / Description
Top Section	Employer & Tax Year Details	Enter the legal employer name, business address, Employer Identification Number (EIN), and calendar year in question.
Column 1 & 2	State & State Reporting Number	List the state where services were performed and the employer’s state unemployment contribution account number.
Column 3 & 4	Taxable Payroll & Experience Rate	Provide the total taxable payroll as defined by state law and the assigned state experience rate period.
Column 5 & 6	Experience Rate & Contributions Paid	List the assigned contribution rate and total state unemployment tax contributions actually paid to the state.
Payment Breakdown	Contribution Timing Dates	Break down payments into three buckets: Paid before Feb 1, Paid Feb 1 through Feb 10, and Paid after Feb 10.
Certification Block	State Officer Certification	Reserved for the official signature, date, and title of the state unemployment tax officer.

Detailed Filling Steps

1. Provide Employer Information: Fill in the business legal name, mailing address, EIN, and the affected calendar year at the top of the form.
2. Enter State Reporting Account Number: Record the exact state unemployment reporting number used on quarterly state contribution returns.
3. Detail Taxable Payroll and Rates: List the state taxable wages, the state experience rate, and the time period the rate was in effect.
4. Break Down Contribution Payments: Report actual state unemployment payments made for the year, categorizing them by payment date (paid before February 1, February 1–10, or after February 10).
5. Submit to State Agency for Certification: Send the form to the state unemployment tax agency liaison. The state officer verifies their records, notes any differences, signs the certification, and stamps the document.
6. Submit Certified Copy to the IRS: Mail or fax the certified Form 940-B back to the IRS audit office specified on your notice within the 90-day response window.

8. Required Documents/Information Needed Before Filling

To ensure smooth processing of Form 940-B, gather the following tax and payroll records:

• IRS Notice or Proposed Adjustment Letter: The official IRS document identifying the Form 940 discrepancy and setting the response deadline.
• Employer Identification Number (EIN): The nine-digit federal tax ID assigned to your business entity.
• State Unemployment Account Number: Your state-assigned employer registration number.
• Quarterly State Unemployment Tax Returns: Copies of filed state quarterly contribution returns (SUTA reports) for all four quarters of the year.
• Proof of State Tax Payments: Cancelled checks, electronic bank receipts, or state confirmation receipts showing the exact dates and amounts paid into the state unemployment fund.

9. Common Mistakes to Avoid

Errors during the proof-of-credit process can cause the IRS to finalize back tax assessments. Avoid these frequent mistakes:

• Missing the 90-Day Deadline: Delaying the request to the state agency, causing you to miss the 90-day IRS response deadline.
• Submitting Uncertified Records: Sending bank statements, canceled checks, or internal ledgers directly to the IRS without obtaining the state officer’s official signature on Form 940-B.
• Confusing EIN with State Account Number: Entering your federal Employer Identification Number in place of your state unemployment reporting number.
• Ignoring Payment Timing: Failing to report payment dates accurately. Payments made after February 1 may result in a reduced FUTA tax credit calculation.
• Sending to the Wrong IRS Address: Mailing Form 920-B to a general filing center instead of the specific IRS liaison office listed on your discrepancy notice.

10. Penalties for Non-Filing or Errors

Form 940-B itself is an informational proof-of-credit document, so there is no direct penalty for failing to complete it. However, failing to obtain and submit Form 940-B when facing an IRS discrepancy notice triggers severe financial consequences:

• Disallowance of the 5.4% FUTA Credit: The IRS will permanently disallow your state unemployment credit, increasing your effective federal unemployment tax rate from 0.6% up to 6.0%.
• Ten-Fold Increase in FUTA Tax: Disallowing the credit increases your federal unemployment tax liability by ten times for the affected tax year.
• Accrued Interest and Late Payment Penalties: The IRS will assess statutory interest and failure-to-pay penalties retroactive to the original Form 940 filing due date.

11. Related Forms or Schedules

Employers resolving FUTA tax credit discrepancies frequently encounter these related tax forms:

• Form 940: Employer’s Annual Federal Unemployment (FUTA) Tax Return.
• Form 940 (Schedule A): Multi-State Employer and Credit Reduction Information.
• Form 940-C: Employer Account Abstracts (sent directly between state agencies and the IRS).
• Form 941: Employer’s QUARTERLY Federal Tax Return.
• Schedule H (Form 1040): Household Employment Taxes.

12. Frequently Asked Questions

1. What is IRS Form 940-B used for?

Form 940-B is used to obtain official proof of credit from a state unemployment agency confirming that an employer paid their state unemployment taxes on time and in the amounts claimed on Form 940.

2. Why did I receive an IRS notice disallowing my Form 940 state tax credit?

Discrepancies usually happen if state tax payments were made late, if the state reporting number on Form 940 was incorrect, or if state computer records failed to match IRS certification data.

3. Who must sign Form 940-B to make it valid?

An authorized state officer from the state unemployment tax agency must sign, date, and certify Form 940-B for the IRS to accept it as proof of credit.

4. How long do I have to submit Form 940-B after receiving an IRS notice?

Employers typically have 90 days from the date of the IRS proposed adjustment notice to obtain certification on Form 940-B and return it to the IRS.

5. Why does payment timing matter on Form 940-B?

Full 5.4% FUTA credit is generally allowed for state taxes paid before February 1 (or the Form 940 due date). Payments made after February 1 may receive a capped credit of 90% of the maximum allowable credit.

6. Can Form 940-B be filed online?

No. Form 940-B must be processed as a physical or faxed document through the state unemployment agency and returned directly to the designated IRS audit unit handling your discrepancy.

13. Conclusion – Key Takeaways

IRS Form 940-B is an essential administrative tool for employers facing IRS proposed adjustments on their annual federal unemployment tax returns. When the IRS cannot verify state unemployment tax payments through automated data matching, Form 940-B provides the official “proof of credit” required to protect your 5.4% FUTA tax credit. If you receive an IRS notice disallowing your state tax credits, act quickly: contact your state unemployment agency, complete Form 940-B, obtain official state certification, and submit the form to the IRS within the 90-day response window to avoid costly tax bills.