Form 940 vs. Form 941: What Are the Key Differences?

Business owners must file various tax forms throughout the year, especially when they have employees. Two important forms are IRS Form 940 and Form 941, both of which relate to employment taxes.

Although these forms may seem similar, they serve different purposes and have different filing requirements. Keep reading to learn how each form works and when you may need to file it.

1. An Overview of Forms 940 and 941

The primary difference between the two forms is the type of employment tax they report.

• Form 940 is used to report federal unemployment taxes under the Federal Unemployment Tax Act (FUTA).
• Form 941 is used to report federal income tax withheld from employees’ wages, along with Social Security and Medicare taxes.

Form 940 is generally filed annually, while Form 941 is generally filed quarterly.

Understanding these differences can help you meet your tax obligations and avoid unnecessary penalties.

2. What Is IRS Form 940?

IRS Form 940 is the Employer’s Annual Federal Unemployment (FUTA) Tax Return. Employers use it to report their federal unemployment tax liability.

FUTA helps fund the federal portion of the unemployment compensation system. Employers generally pay this tax themselves rather than deducting it from employees’ wages.

Who Needs to File Form 940?

Generally, an employer must file Form 940 if either of the following conditions applied during the current or preceding calendar year:

• The employer paid wages of $1,500 or more to employees during any calendar quarter.
• The employer had at least one employee working for some part of a day in 20 or more different weeks.

The 20-week test generally counts all employees, including part-time and temporary workers, subject to the applicable IRS rules. A week can count even if an employee worked only part of one day.

Certain exceptions apply, including special rules for agricultural employers and household employers.

How Is FUTA Tax Calculated?

FUTA tax generally applies to the first $7,000 in wages paid to each employee during a calendar year. Certain payments may be excluded from FUTA wages under IRS rules.

The standard FUTA tax rate is 6%. Employers may qualify for a credit for eligible state unemployment taxes paid, potentially reducing the effective FUTA rate to 0.6%.

However, the credit and final tax liability depend on the employer’s circumstances, including applicable state unemployment tax requirements.

When Is Form 940 Due?

Form 940 is generally due by January 31 following the calendar year being reported. If the employer deposited all FUTA taxes when required, the IRS generally allows additional time to file, until February 10.

Employers should also monitor their FUTA tax liability throughout the year because deposits may be required before the annual return is due.

3. What Is IRS Form 941?

IRS Form 941 is the Employer’s Quarterly Federal Tax Return. Employers generally use it to report payroll taxes withheld from employees and the employer’s share of Social Security and Medicare taxes.

Information reported on Form 941 typically includes:

• Wages, tips, and other compensation paid to employees.
• Federal income tax withheld from employee wages.
• Taxable Social Security wages and related taxes.
• Taxable Medicare wages and related taxes.
• Certain adjustments, credits, and other employment tax information.

Unlike FUTA tax, federal income tax withholding and employees’ shares of Social Security and Medicare taxes are generally withheld from employee compensation. Employers are also responsible for paying their required share of Social Security and Medicare taxes.

Who Needs to File Form 941?

Most employers who pay wages subject to federal income tax withholding or Social Security and Medicare taxes must file Form 941.

However, certain employers may follow different reporting requirements. These can include qualifying seasonal employers, employers of household workers, and agricultural employers, depending on their circumstances and the forms they are required to file.

Employers should confirm which reporting rules apply to their business rather than assuming that every employer must file Form 941.

When Is Form 941 Due?

Form 941 is generally due on the last day of the month following the end of each calendar quarter.

The usual deadlines are:

• First quarter (January–March): April 30.
• Second quarter (April–June): July 31.
• Third quarter (July–September): October 31.
• Fourth quarter (October–December): January 31 of the following year.

If a deadline falls on a Saturday, Sunday, or legal holiday, the due date generally moves to the next business day.

In certain circumstances, employers who have deposited all taxes due on time may qualify for an additional 10 calendar days to file Form 941.

It’s important to understand that filing deadlines and tax deposit deadlines are separate requirements. Paying employment taxes on time does not automatically eliminate every filing obligation.

4. The Key Differences Between Forms 940 and 941

Although both forms relate to employment taxes, there are several important differences.

Form 940:

• Reports federal unemployment tax.
• Is generally filed once a year.
• Applies to employers who meet the applicable FUTA requirements.
• Reports taxes generally paid by the employer rather than withheld from employee wages.

Form 941:

• Reports federal income tax withholding and Social Security and Medicare taxes.
• Is generally filed every quarter.
• Applies to most employers paying wages subject to these employment taxes.
• Reports both employee withholding and the employer’s share of applicable payroll taxes.

The main distinction is that Form 940 covers federal unemployment tax, while Form 941 covers other major federal payroll tax obligations.

5. Get Help With Your Employment Tax Obligations

Understanding the differences between Forms 940 and 941 is essential for maintaining accurate payroll records and meeting IRS requirements.

Missing a filing deadline, reporting incorrect amounts, or failing to deposit employment taxes can lead to penalties and additional complications for your business.

If you’re unsure which forms your business needs to file or how to calculate your employment tax obligations, consider consulting a qualified tax professional.

Contact Silver Tax Group to discuss your tax-related questions and learn more about your options.

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