QuickBooks Form 940 Interview: Credit Reduction, Exempt Payments & Name Control
QuickBooks users filing Form 940 encounter interview prompts for Schedule A, FUTA credit reduction, exempt payments, and Business Name Control — here is what each means.
QuickBooks Desktop walks employers through an interview-style workflow when preparing Form 940, the annual federal unemployment (FUTA) tax return. The interview gathers the details needed to populate the form, its payment voucher, Schedule A, and the related state unemployment credit worksheet. Several of those prompts routinely cause confusion — particularly around exempt payments, credit reduction states, and the Business Name Control field required for e-filing.
Exempt Payments and What to Exclude
One prompt in the interview asks about payments that are exempt from FUTA tax. QuickBooks users sometimes wonder whether qualified moving expense reimbursements belong on the form. They do not — those reimbursements are not exempt from FUTA tax and should not be reported on line 4 as an exempt payment.
Income from qualified equity grants under section 83(i), by contrast, is exempt from FUTA taxes. QuickBooks categorizes that type of income as an “other exempt payment” on the form.
Schedule A and Credit Reduction States
Schedule A applies in two situations: when an employer pays state unemployment insurance (SUI) tax to more than one state, or when an employer is subject to FUTA credit reduction.
Credit reduction applies to states that have not repaid money borrowed from the federal government to cover unemployment benefits. The U.S. Department of Labor determines which states fall into this category each year. Employers that paid FUTA-taxable wages — also subject to state unemployment taxes — in a jurisdiction with a credit reduction rate above zero must pay additional federal unemployment tax when filing Form 940. That additional amount is calculated on Schedule A.
Wages paid in the U.S. Virgin Islands, for example, have been subject to credit reduction. The IRS maintains a FAQ page on FUTA Credit Reduction that links to the Department of Labor’s official list of affected states and jurisdictions.
Business Name Control and E-Filing
The Business Name Control is what the IRS uses to verify a company’s legal name and Employer Identification Number (EIN) against its records when a return is e-filed. QuickBooks pulls this value from the legal business name entered in Company Information, so any mismatch between what is on file with the IRS and what is stored in QuickBooks can cause an e-file rejection.
The IRS typically derives the Name Control from the first four alphanumeric characters of the legal business name. Ampersands and hyphens are the only special characters allowed. There are exceptions to that general rule, though — for instance, when an individual’s name is used in place of a formal business name. In those cases the value may need to be adjusted manually.
Employers can confirm their official Business Name Control on IRS notice CP575, which is issued when the EIN is assigned. If that notice is unavailable, the IRS Business & Specialty Tax Line can provide the Name Control to the taxpayer or an authorized representative after verifying identity and authorization.
Practical Takeaways for the Interview
The Form 940 interview is designed to catch details that would otherwise require manual entry on the printed form. Getting the answers right depends on having accurate company information in QuickBooks, knowing whether any wages were paid in a credit reduction state, and understanding which types of compensation are genuinely exempt from FUTA tax.
For employers managing payroll across multiple states or dealing with credit reduction calculations, the Schedule A worksheet handles the math — but only if the underlying wage data in QuickBooks is correct. Reviewing state-by-state wage allocations before starting the interview can prevent errors from carrying through to the filed return.