Employers face multiple payroll tax obligations, and with multiple forms sharing a similar pattern and structure, it becomes even more difficult to collect forms from an authorized source and submit them correctly.
Key Takeaways
- Form 940 is an annual report for employers to file their Federal Unemployment Tax Act (FUTA) tax liability.
- Form 941 is a quarterly report for employers to report their employees’ federal income tax withholding, Social Security, and Medicare taxes.
- Employers must file both forms, but they serve different purposes, with Form 940 addressing unemployment taxes and Form 941 handling payroll taxes.
Form 940 vs Form 941
The difference between form 940 and form 941 is that form 940 is filed annually and reports an employer’s Federal Unemployment Tax liability. While form 941 reports the Federal Insurance Taxes and the Federal Income tax Withholding. Form 940 reports the FUTA tax paid by the employer, while Form 941 reports the shared taxes between the employer and the employee.
The IRS Form 940 is used to calculate a firm’s annual FUTA tax and is filed by an employer. The main aim behind filling out this form is to pay unemployment compensation for the employees who lost their jobs.
In this form, an employer is supposed to report the number of employees, the amount of security money they have deposited, and all security and Medicare withholdings of the employee. It also reports the advances on the income credits earned by the employee.
Comparison Table
| Parameters of Comparison | Form 940 | Form 941 |
|---|---|---|
| Basic Information | The IRS Form 940 is used to calculate a firm’s annual FUTA tax and is filed by an employer. | Form 941, or the employer’s quarterly tax form, serves the purpose of reporting the federal withholdings from most of employees. |
| Main Aim | Form 940 calculates the FUTA tax Of a business for the previous year and any outstanding unemployment Taxes for the previous and the current year. | It is used to report the number of employees, the amount of security money they have deposited, and all security and Medicare withholdings of the employee. |
| Duration | Form 940 is filed annually. | Form 941 is filed quarterly. |
| Last Date of Filing | Form 940 should be filed before the end of February every year. | The deadlines for filing Form 941 are April 30, July 31, October 31, and January 31 every year. |
| Exceptions | None | The exceptions to filing a Form 941 are Seasonal employers that do not pay wages to the employees for one or more quarters, household employees, and agricultural employees. |
What is Form 940?
The IRS Form 940 is used to calculate a firm’s annual FUTA tax and is filed by an employer. The main aim behind filling out this form is to pay unemployment compensation to the employees who lost their jobs.
The Form 940 becomes double, just like the annual payroll return. It is based on the first $7000 wage of each employee. The employers file this along with their IRS reporting stating the amount of money paid by them to their employees.
If the employees of an employer are present in more than one state, the employer also has to file section A of Form 940. This is used to check if the particular state has a wage deduction principle under the unemployment compensation laws.
What is Form 941?
Form 941, or the employer’s quarterly tax form, reports the federal withholdings from most employees. In this form, an employer is supposed to report the number of employees, the amount of security money they have deposited, and all security and Medicare withholdings of the employee. It also reports the advances in the income credits earned by the employee.
An employer uses this to report the income tax, Medicare tax, and security tax deducted from an employee’s payroll and also to pay the employer’s share of security and Medicare taxes.
While filing a Form 941, you must report the total number of employees working under you, the total wages you paid, and the amount of taxes you withhold to account for the total you reached for sending the IRS.
Main Differences Between Form 940 and Form 941
- There are no exceptions for Form 940, but Seasonal employers that do not pay wages to the employees for one or more quarters, household employees, and agricultural employees are the exceptions to Form 941.
- For the companies with annual payroll and liabilities that total to less than $1000, an alternate Form 944 is available, which is filed annually.
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Last Updated : 13 July, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
The clarity in explaining the main aims and duration of filing for both forms assists employers in complying with the necessary tax filings accurately and promptly.
The detailed description of the purposes and filing requirements of both Form 940 and Form 941 delivers substantial value, especially for employers who need to fulfill these obligations.
The detailed explanations of Form 940 and Form 941, along with the mention of an alternate Form 944 for certain companies, makes this article an invaluable resource for employers navigating their payroll tax obligations.
The references provided at the end of the article enhance its credibility and offer readers the opportunity to further explore the topic.
The additional information about the exceptions to filing Form 941 further enriches the article’s content, ensuring comprehensive awareness about the nuances of these tax forms.
The comparison table is particularly useful in highlighting the distinct parameters and differences between the two forms, making it easier for employers to distinguish between them.
This article provides an easy-to-understand comparison between Form 940 and Form 941, helping employers grasp the main differences.
A clear and concise explanation of both forms, allowing employers to gain an in-depth understanding of their payroll tax obligations.