Form 940 vs 941: FUTA vs Payroll Tax

Form 940 is the Employer's Annual Federal Unemployment (FUTA) Tax Return. This form reports the Federal Unemployment Tax, which is paid entirely by the employer. FUTA tax helps fund unemployment compensation for workers who lose their jobs.

Key points about Form 940:

• The FUTA tax rate is 6.0% on the first $7,000 of wages paid to each employee
• Most employers receive a credit of up to 5.4% for state unemployment taxes paid, reducing the effective rate to 0.6%
• Employers must file Form 940 if they paid wages of $1,500 or more in any calendar quarter, or had one or more employees for at least some part of a day in 20 or more different weeks
• The form is filed annually with a due date of January 31

Form 941 is the Employer's Quarterly Federal Tax Return. This form reports federal income taxes withheld from employee wages, along with both the employer and employee portions of Social Security and Medicare taxes.

Key points about Form 941:

• Reports wages paid, tips reported, and taxes withheld
• Social Security tax is 6.2% each for employer and employee (12.4% total) on wages up to $176,100
• Medicare tax is 1.45% each for employer and employee (2.9% total) with no wage limit
• Additional 0.9% Medicare tax on employee wages over $200,000
• Filed quarterly, four times per year

Yes, most employers must file both forms. Form 940 and Form 941 report different taxes to the IRS. If you have employees and meet the filing thresholds for each form, you are required to file both.

You must file Form 940 if:

• You paid wages of $1,500 or more in any calendar quarter, OR
• You had one or more employees for at least some part of a day in 20 or more different weeks

You must file Form 941 if:

• You pay wages subject to federal income tax withholding, Social Security, and Medicare taxes
• Exception: Seasonal employers or very small employers may qualify for Form 944 (annual filing) instead

Form 940 Due Date:

• January 31 following the tax year
• If you deposited all FUTA tax when due, you have until February 10

Form 941 Due Dates:

If any due date falls on a weekend or federal holiday, the deadline moves to the next business day.

Form 940 (FUTA) Deposits:

• If your FUTA tax liability for a quarter is more than $500, you must deposit by the end of the following month
• If $500 or less, you can carry it forward to the next quarter
• All deposits must be made using EFTPS (Electronic Federal Tax Payment System)

Form 941 Deposits:

• Monthly depositors: Deposit by the 15th of the following month
• Semiweekly depositors: Deposit within 3 business days based on payday (requires Schedule B)
• The deposit schedule depends on your total tax liability during the lookback period

The IRS assesses penalties for late filing and late payment of both Form 940 and Form 941 taxes.

Failure-to-File Penalty:

• 5% of unpaid taxes for each month or part of a month the return is late
• Maximum penalty: 25% of unpaid taxes

Failure-to-Deposit Penalty:

• 2% if 1-5 days late
• 5% if 6-15 days late
• 10% if more than 15 days late
• 15% if not paid within 10 days of IRS notice

Trust Fund Recovery Penalty: Officers or employees responsible for collecting and paying Form 941 taxes can be held personally liable for unpaid taxes.