Small business owner with no employees - Do I need to file Form 940 for federal unemployment tax?

7 Thanks for the info! One follow-up question - if I hire a contractor occasionally for some help (like maybe 2-3 times a year, paying them less than $600 each time), does that change anything regarding the 940 requirement?

15 Independent contractors don't count as employees for Form 940 purposes, so that wouldn't change your filing requirements. You only need to worry about Form 940 when you have actual employees (W-2 workers). If you pay any contractor $600 or more during the tax year, you'd need to issue them a 1099-NEC by January 31st of the following year. Since you mentioned paying less than $600, you wouldn't even have the 1099-NEC filing requirement in that scenario.

12 Does it actually work with complicated business situations? I have a mix of contract work and a small online store, and I'm always confused about what forms I need.

18 I'm skeptical about tax AI tools. How accurate is it compared to an actual accountant? Seems risky to trust algorithms with tax compliance.

9 It absolutely works with complicated business situations. I uploaded my documents showing both my consulting income and some product sales, and it broke everything down by category and identified exactly which forms I needed to file. It's designed specifically to handle these mixed-income situations. The accuracy has been remarkable in my experience. It's built on tax code and regulations, not just general AI, so it's specifically trained on tax rules. I still review everything, but it's caught things my previous accountant missed, especially around home office and vehicle deductions. Plus it costs way less than what I was paying for professional help.

6 Wait, how does this actually work? Does it just call the IRS for you? Couldn't I just do that myself?

18 Yeah right. Nothing gets you through to the IRS quickly. I've literally waited on hold for 3+ hours before giving up. This sounds too good to be true.

22 It doesn't just call for you - it uses a priority connection system that navigates the IRS phone tree and waits on hold for you. When they reach an agent, you get a call back so you can talk directly with them. You don't have to sit on hold for hours. You absolutely could try calling yourself, but if you've ever called the IRS, you know the wait times can be ridiculous - sometimes 2-3 hours if you can even get through at all. Their system significantly reduces that wait time, and you don't have to stay on the phone during the hold time. Your time is probably worth more than what the service costs.

3 This is a really good point. Does anyone know if California has additional requirements beyond the federal stuff? I'm moving my small business there next month.

4 California has several additional requirements. You'll likely need to register with the California Secretary of State, possibly get a seller's permit from the California Department of Tax and Fee Administration (CDTFA) if you're selling tangible goods, and pay an annual LLC fee if you're structured as an LLC (even with just one owner and no employees). They also have a mandatory annual $800 minimum franchise tax for LLCs, corporations, and partnerships, which catches many new business owners by surprise. I'd recommend checking with the California Tax Service Center website as soon as you move to make sure you're compliant from day one.

15 You don't pay unemployment taxes for yourself as a business owner. Unemployment insurance is designed to protect employees, not business owners. As a self-employed person, you're not eligible for traditional unemployment benefits if your business fails. If you want protection against potential loss of income, look into private income protection insurance policies designed for self-employed individuals. The 30% you're setting aside for income taxes and self-employment taxes (Schedule SE) is a good start, but you might want to consider additional personal savings for emergencies rather than worrying about unemployment taxes.

Actually, there are some states where LLC owners can elect to pay into unemployment insurance for themselves. It's not federally required, but states like New York, California, and several others have programs that allow business owners to voluntarily contribute to state unemployment funds to make themselves eligible for benefits if needed. Worth checking with your state's labor department to see if this option exists where you're located. The federal Form 940 still wouldn't apply since it's specifically for employees, but state programs can be different.