Form 940
Form 940 is the annual federal return that reports and reconciles federal unemployment (FUTA) tax.
FUTA tax is small, generally 0.6 percent of the first $7,000 of each employee’s wages after the full state credit, but Form 940 matters in a PEO evaluation for the same reason Form 941 does: it reveals which entity the IRS treats as responsible for the tax. A CPEO files its own 940 for worksite employees and attaches Schedule R allocating amounts per client; with a non-certified PEO, liability analysis defaults to the common-law employer, which is usually you.
The 940 is also where a mid-year PEO transition shows its cost. FUTA applies per employer to each employee’s first $7,000 of wages, so when the filing entity changes mid-year, that wage base can restart unless a successor rule or CPEO treatment applies. If you are considering joining or leaving a PEO on any date other than January 1, model the FUTA and Social Security restart before choosing the date.