If your business truly has no employees, you do not need to file Form 940. The form exists to report federal unemployment (FUTA) tax, and FUTA only applies when a business pays wages to employees. The complication is that “employee” is defined by the IRS, not by what you call the people you pay, and several categories of workers count as employees even when a business owner assumes they don’t. Before concluding that you have no filing obligation, it’s worth checking your situation against the rules below.
The Two Tests That Create a Filing Obligation
A business owes FUTA, and therefore files Form 940, if it meets either of two tests in the current or prior calendar year:
- Paid $1,500 or more in wages to employees in any single calendar quarter, or
- Had at least one employee for any part of a day in 20 or more different weeks during the year.1Office of the Law Revision Counsel. 26 U.S. Code 3306 – Definitions
Only one of the two needs to be met. Part-time and temporary workers count. A person you hired for a few hours a week across 20 weeks satisfies the employee test regardless of how little you paid them. And because both tests look back to the prior year, meeting either one in 2025 keeps you on the hook for 2026 even if you have no one working for you the entire year.
If neither test is met and no one you pay qualifies as an employee under the rules that follow, you have no Form 940 filing requirement.
Who the IRS Counts as an Employee
The IRS looks past labels and contracts to the actual working relationship. Three categories of evidence drive the classification:
- Behavioral control: whether you direct what the person does and how they do it, set their schedule, or require specific methods.
- Financial control: whether the worker invests in their own equipment, offers services to other clients, and stands to make a profit or take a loss.
- Relationship type: whether there is a written contract, whether the worker gets benefits like health insurance or paid time off, and whether the work is ongoing or project-based.
No one factor decides it. If the full picture shows you control both the outcome and the process, the worker is an employee for tax purposes and their wages count toward the FUTA tests, whatever the contract says.
Corporate Officers Who Take a Paycheck
Officers of a corporation who perform services and receive compensation are employees. The IRS is explicit: payments to corporate officers are wages subject to FUTA, FICA, and income tax withholding.2Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers This is the trap that catches solo S corporation owners. If you run an S corp and pay yourself a salary, you have at least one employee, that employee is you, and you almost certainly meet the wage test. Form 940 applies.
Statutory Employees
Certain workers are treated as employees by law regardless of how the common-law factors come out. The IRS recognizes four categories:
- Delivery drivers who distribute beverages, meat, produce, or bakery products, or who pick up and deliver laundry or dry cleaning, when paid on commission or acting as your agent.
- Full-time life insurance agents whose main work is selling life insurance or annuity contracts, primarily for one company.
- Home workers who work at home on materials you supply and return to you, following your specifications.
- Full-time traveling salespeople who take orders on your behalf from retailers, restaurants, or similar businesses when that work is their main job.
Pay someone in one of these categories and they are your employee for FUTA purposes even if you consider them a contractor.3Internal Revenue Service. Statutory Employees
When the Classification Is Genuinely Unclear
Either the business or the worker can ask the IRS for an official determination by filing Form SS-8. The IRS reviews the facts and rules on whether the worker is an employee or an independent contractor.4Internal Revenue Service. About Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding The process is slow, often months, but it gives you certainty and protection from penalties if you’ve been filing in good faith.
Owners Who Genuinely Have No Employees
Some working owners do not count as employees under FUTA. A sole proprietor is not an employee of the sole proprietorship. Partners are not employees of the partnership. A single-member LLC owner who has not elected corporate treatment is treated as a sole proprietor for these purposes. If you are the only person working in the business and you fit one of those descriptions, you have no employees, neither test can be met, and Form 940 does not apply.
The distinction to watch is entity choice. The moment a single owner elects S corporation or C corporation status and pays themselves a salary, the officer rule kicks in and Form 940 comes with it.
When You Pay Workers but Still Don’t File Form 940
A handful of situations produce a filing exemption even when you have people on payroll.
501(c)(3) Nonprofits
Organizations with 501(c)(3) tax-exempt status are exempt from FUTA. A qualifying religious, charitable, or educational organization owes no federal unemployment tax on the wages it pays and files no Form 940.5Internal Revenue Service. Section 501(c)(3) Organizations – FUTA Exemption The exemption is FUTA-only. FICA and state unemployment rules still apply on their own terms.
Household Employers
If the only people you pay are household workers — a nanny, housekeeper, or private nurse — you generally do not file Form 940 at all. Household employers report federal employment taxes on Schedule H attached to their personal Form 1040. The FUTA threshold in this context is $1,000 or more in cash wages in any calendar quarter, not the standard $1,500.6Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide Form 940 becomes an option only if you also have business employees.
Agricultural employers have their own thresholds and their own version of the analysis; if farmworkers are involved, the standard tests above are not the ones that apply to you.
What to Do If You Should Have Been Filing
Working through the rules above sometimes surfaces the opposite problem: you concluded you had no employees, but the corporate officer rule or a worker reclassification says otherwise. Two IRS programs exist for this situation, and they matter because the penalties for ignoring it are steep.
Section 530 Relief
Section 530 of the Revenue Act of 1978 can eliminate your liability for back employment taxes on misclassified workers if you filed all required 1099s for those workers on time, never treated anyone in a similar role as an employee, and had a reasonable basis for treating the workers as contractors. A reasonable basis can come from a prior IRS audit that didn’t reclassify similar workers, relevant court decisions, or established industry practice.7Internal Revenue Service. Worker Reclassification – Section 530 Relief The IRS reads that requirement generously in favor of the taxpayer.
Voluntary Classification Settlement Program
If you accept that workers should be reclassified and want to fix the classification going forward, the Voluntary Classification Settlement Program lets you do it at a discount. You pay 10% of one year’s employment tax liability on the affected workers, with no interest or penalties, and the IRS agrees not to audit your worker classification for prior years. You apply using Form 8952 at least 120 days before you want to start treating the workers as employees.8Internal Revenue Service. Voluntary Classification Settlement Program (VCSP)
Penalties for Skipping a Required Filing
The failure-to-file penalty for a required Form 940 is 5% of the unpaid tax for each month or partial month the return is late, up to 25%.9Internal Revenue Service. Failure to File Penalty Missed deposits carry their own escalating penalties: 2% for 1 to 5 days late, 5% for 6 to 15 days, 10% beyond 15 days, and 15% once the IRS has issued a delinquency notice and 10 more days pass without payment.10Office of the Law Revision Counsel. 26 U.S. Code 6656 – Failure to Make Deposit of Taxes Both penalties can apply at the same time, with interest running on top.
If you’ve confirmed you have no employees under any of the rules above, none of that touches you. The point of running through the checks is to be sure the conclusion is right.