Preparing Form 940 in QuickBooks should be straightforward, but many businesses run into frustrating errors that delay filing and create confusion. One of the most common issues appears when you click Check for Errors and QuickBooks flags a mismatch between exempt payments and FUTA wages. If left unresolved, this error can cause inaccurate Federal Unemployment Tax Act (FUTA) reporting and potential compliance problems.
In this in-depth guide, you’ll learn exactly why this Form 940 error happens in QuickBooks, what payroll items typically cause it, and how to fix it correctly. By following these steps, you can reconcile FUTA wages, correct payroll item settings, and file Form 940 with confidence.
Understanding the Common Form 940 Error in QuickBooks
When preparing Form 940 in QuickBooks Desktop, you may encounter this message:
“Total of this column doesn’t equal the exempt payments total. The difference is [amount]. You must make the necessary adjustments to reconcile the amounts.”
This warning indicates a discrepancy in Part 2: Determine your FUTA tax before adjustments. In simple terms, QuickBooks is detecting that some wages were treated inconsistently—either FUTA-exempt wages were taxed or taxable wages were incorrectly marked as exempt.
This error almost always traces back to payroll item setup issues.
Why QuickBooks Shows FUTA Mismatch Error?
The most common cause of this Form 940 error is a payroll item that should be exempt from Federal Unemployment Tax but was incorrectly set up to calculate FUTA.
Payroll items that frequently trigger this issue include:
- Fringe benefits
- Group Term Life Insurance (GTLI)
- Retirement plan contributions
- Dependent care benefits
These compensation types are typically FUTA-exempt. However, if they are configured incorrectly in QuickBooks, they inflate FUTA wages and cause Form 940 totals to fall out of balance.
Fix Exempt Payments vs FUTA Wages Error in QuickBooks Form 940
Fixing Form 940 errors in QuickBooks is essential to ensure accurate FUTA reporting and avoid delays or penalties during tax filing. These errors usually occur due to incorrect payroll item settings or mismatched FUTA wages, but they can be resolved quickly with the right steps and careful review.
Step 1: Identify the Payroll Items Causing the Error
Before making changes, you need to determine which payroll items are misconfigured.
Start by reviewing the payroll items used during the tax year:
- Open QuickBooks.
- Go to Lists and select Payroll Item List.
- Look for fringe benefits, GTLI, retirement plans, or dependent care items.
- Identify which of these items were applied to employee paychecks during the year.
Once you’ve identified the likely culprit, you can move on to correcting the payroll item setup.
Step 2: Correct Payroll Item Tax Settings in QuickBooks
Fixing the payroll item configuration is critical to resolving the Form 940 error permanently.
A. Edit the Payroll Item
- From Lists, select Payroll Item List.
- Right-click the payroll item you identified and choose Edit Payroll Item.
- Select Next until you reach the Tax Tracking Type screen.
B. Verify the Tax Tracking Type
Make sure the selected tax tracking type accurately matches the payroll item:
- Avoid using the generic Other tax tracking type.
- Choose the option that best reflects the nature of the benefit or compensation.
If the tax tracking type is already correct, you can skip ahead to reviewing employee wages. If it’s incorrect:
- Select the correct tax tracking type.
- Click Next twice.
- Select Finish.
Step 3: Review Federal Unemployment (FUTA) Tax Settings
After confirming the tax tracking type, review the FUTA tax settings for the payroll item:
- Click Next to open the Taxes window.
- Review the Federal Unemployment checkbox:
- If the item should be subject to FUTA, ensure the box is checked.
- If the item should be FUTA-exempt, make sure the box is unchecked.
- Select Next, then click Finish.
This step ensures that FUTA is calculated only on wages that are legally taxable.
Step 4: Fix Employee FUTA Wages in QuickBooks
Correcting the payroll item setup alone does not fix wages already recorded. You must also adjust employee FUTA wages so Form 940 totals reconcile properly.
Create a Backup First
Before making any wage adjustments:
- Create and save a full backup of your QuickBooks company file.
This protects your data and allows you to restore it if needed.
Step 5: Run a Payroll Checkup
QuickBooks includes a built-in Payroll Checkup tool that can often resolve wage inconsistencies automatically.
To run a payroll checkup:
- Go to Employees.
- Select My Payroll Service.
- Click Run Payroll Checkup.
- Follow the on-screen prompts carefully.
After completing the checkup, reopen Form 940 and click Check for Errors again. In many cases, this resolves the mismatch without further action.
Step 6: Create Manual FUTA Wage Base Adjustments (If Needed)
If the payroll checkup does not correct the error, you’ll need to manually adjust FUTA wages for affected employees.
This involves creating wage base adjustments for each employee who received the incorrectly taxed payroll item.
Key Tips for Manual Adjustments
- Adjust only FUTA wages, not gross pay.
- Apply corrections to the appropriate tax year.
- Document all changes for audit and compliance purposes.
Because manual adjustments directly affect payroll tax records, proceed carefully or consult a payroll professional if you’re unsure.
How to Fix Unable to File Form 940 Issue in QuickBooks?
If QuickBooks won’t let you file Form 940 — whether electronically or by printing — the problem often stems from outdated software, payroll tax tables, incorrect company information, or data inconsistencies. These obstacles can block QuickBooks from generating or submitting the form properly. Below are the practical steps to resolve this filing issue quickly.
1. Update QuickBooks and Payroll Tax Tables
One of the most common reasons QuickBooks prevents Form 940 from being filed is outdated software or tax tables. QuickBooks regularly updates forms and tax rates to match IRS requirements. If your system isn’t updated, the software may not support the current IRS form format.
- Open QuickBooks and go to Help.
- Select Update QuickBooks Desktop and install all available updates.
- Navigate to Employees > Get Payroll Updates.
- Download the latest payroll tax table updates.
Restart QuickBooks after completing the updates.
2. Verify Company Information and EIN
Incorrect company details can also block filing. QuickBooks pulls your Employer Identification Number (EIN), business name, and address from your company information — and these must exactly match IRS records.
- Go to Company > My Company.
- Confirm your legal business name, address, and EIN.
- Make sure the EIN matches IRS records exactly, without extra spaces or incorrect digits.
Even a minor mismatch can cause filing errors.
3. Review FUTA Liability and Wage Limits
QuickBooks may stop the filing process if FUTA wages exceed the annual wage base limit or do not match payroll reports.
- Open Reports > Employees & Payroll > Payroll Tax Liability.
- Review FUTA wages for each employee.
- Confirm FUTA wages do not exceed the annual FUTA wage base.
Correct any discrepancies before attempting to file again.
4. Run “Check for Errors” on Form 940
Before filing, QuickBooks requires all errors to be resolved.
- Go to Employees > Payroll Tax Forms & W-2s.
- Select Process Payroll Forms.
- Choose Form 940 and click Check for Errors.
Fix any issues listed, including FUTA mismatches or exempt wage errors.
5. Perform a Payroll Checkup
Running a payroll checkup can automatically correct many hidden issues.
- Navigate to Employees > My Payroll Service.
- Select Run Payroll Checkup.
- Follow the on-screen instructions carefully.
This step often resolves filing blocks caused by data inconsistencies.
6. Use E-File History to See Rejection Details
If your Form 940 submission is rejected, QuickBooks allows you to view the e-file history to find the specific rejection reason. This detail helps you correct the exact issue before attempting to file again.
- Go to Employees > Payroll Center.
- Click E-File Submission History and review rejection messages.
- Resolve issues indicated by the IRS and then resubmit the form.
7. Verify Internet and E-File Settings
If everything appears correct but you still cannot file:
- Ensure you have a stable internet connection.
- Confirm e-file and e-pay are enabled under Employees > My Payroll Service > Account/Billing Information.
- Check that your payroll subscription is active.
8. Rebuild and Verify Your Company File
Corrupted or damaged company data can cause filing errors, especially if QuickBooks cannot pull accurate wage or tax amounts for Form 940. Repairing your file often resolves these deep-seated issues.
- Go to File > Utilities > Verify Data.
- If issues show up, then go to File > Utilities > Rebuild Data.
- Try regenerating and filing Form 940 afterward.
9. Reopen and Refile Form 940
After completing all corrections:
- Close and reopen QuickBooks.
- Reopen Form 940 and review the totals.
- Click Submit Form once no errors remain.
If e-filing still fails, you may print and file the form manually as a temporary solution.
Consistently updating QuickBooks and payroll tax tables, double-checking company tax information, and maintaining clean payroll records can prevent most Unable to File Form 940 issues from recurring. If problems persist after trying these fixes, consider contacting QuickBooks Payroll Support or a qualified accountant for additional assistance.
How to Prevent Form 940 Error in the Future?
Once you’ve resolved the current issue, take proactive steps to prevent future Form 940 errors in QuickBooks:
- Review payroll item tax settings annually.
- Verify FUTA applicability before creating new payroll items.
- Run payroll reports periodically to spot inconsistencies early.
- Perform a payroll checkup before preparing year-end tax forms.
These best practices can save hours of troubleshooting during tax season.
Final Thoughts on Fixing Form 940 Errors in QuickBooks
Form 940 errors in QuickBooks are common, but they’re also fixable when you understand the root cause. In most cases, the issue stems from FUTA-exempt payroll items that were incorrectly taxed. By correcting payroll item settings, reviewing FUTA tax options, and adjusting employee wages, you can bring your Form 940 back into balance.
Taking the time to fix these errors properly not only ensures accurate FUTA reporting but also helps protect your business from penalties and compliance issues. With the steps outlined above, you can confidently prepare and file Form 940 in QuickBooks—accurately and on time.
Frequently Asked Questions
Modifying Form 940 in QuickBooks Online generally means correcting the payroll data that feeds into the form — QuickBooks Online doesn’t let you edit the IRS form itself directly. To update the information that affects Form 940:
1. Review payroll items and wages in QuickBooks Online to make sure exempt and taxable wages are classified correctly.
2. Correct employee or payroll item settings (such as FUTA-exempt items) so the totals on the form are accurate.
3. After making data corrections, re-generate Form 940 from the payroll forms section of QuickBooks Online.
This process ensures the right figures flow into the FUTA tax calculation before filing.
When you encounter errors on Form 941 in QuickBooks Online or Desktop:
1. Update payroll and software. Make sure QuickBooks and tax tables are current.
2. Run the built-in error check in QuickBooks for the form.
3. Verify employee and wage data — especially federal tax withholding, Social Security, and Medicare figures.
4. Correct payroll item setups such as incorrect tax tracking classifications.
5. If the IRS rejection mentions specific issues, review and fix the flagged line items in QuickBooks.
6. Re-run the form check and then file once all errors are resolved.
Correct data and settings help QuickBooks generate accurate 941 returns that match IRS records.
On IRS Form 940, a successor employer is defined under IRS rules as an employer who:
1. Acquires substantially all the property used in a trade or business from another employer (the predecessor), and
2. Immediately after the acquisition, employs at least one person who was employed by the predecessor.
This designation matters because a successor employer may carry over FUTA wage bases and can claim credits based on state unemployment taxes paid by the predecessor.
Federal tax reporting and deposits vary by form:
1. Form 941 – Report quarterly payroll taxes: federal income tax withheld, and Social Security and Medicare taxes. Employers usually deposit monthly or semiweekly depending on liability amounts.
2. Form 944 – Used by small employers (less than $1,000 in payroll tax liability) to file annually instead of Form 941.
3. Form 943 – Used for agricultural employers to report Social Security, Medicare, and withholding taxes once per year.
4. Form 940 – Filed annually to report Federal Unemployment Tax Act (FUTA) taxes. FUTA deposits may be quarterly if the annual tax liability exceeds $500.
Federal tax deposits for all these forms must generally be made electronically through the Electronic Federal Tax Payment System (EFTPS) or other IRS-approved methods, and deposits are reconciled with the quarterly/annual filings.
To file amended or corrected federal payroll forms in QuickBooks Desktop Payroll:
1. Form 941-X: Use this form to amend a quarterly Form 941. QuickBooks Desktop Payroll Enhanced allows creation and printing of Form 941-X directly from the payroll form menu.
2. Correcting Form 940: There isn’t a special “X” form for Form 940. Instead, you use the same Form 940 for the year originally filed, check the Amended Return box, and fill in the correct figures. QuickBooks Desktop lets you recreate the form for the year in question and print it with the amended box checked.
After completing corrections, the amended forms must be printed and filed with the IRS by mail following IRS instructions, even if the original filing was electronic.
For the 2025 tax year (filed in 2026):
1. The due date for Form 940 is February 2, 2026, because January 31 falls on a weekend/holiday.
2. If all FUTA tax deposits were made on time and in full, employers have a 10-day extension and may file by February 10, 2026.
3. If the IRS receives the return after the due date but it is postmarked by the deadline (and properly addressed), it will still be considered timely.
Key Tips:
1. Deposit FUTA tax electronically through EFTPS before or at the due date when required.
2. Ensure payroll records and FUTA tax calculations are accurate well before the annual deadline.
3. Monitor state unemployment tax payments — these affect your FUTA credit and net tax liability.
