IRS Form 940 Vs. Form 941: What Are The Key Differences?

Knowing the right form for Internal Revenue Service (IRS) requirements is something you might ignore, especially when several types of forms look the same.

IRS Form

However, you should know that when it comes to payroll obligations, you cannot be careless, as taxes paid using a form that is not valid for you might not be considered a fully paid tax. Ignoring it could result in penalties, as well.

One such mishap that taxpayers often make is confusing between Form 940 and Form 941.

In this article, we will define these two IRS forms and help you understand the key differences between them.

What Is IRS Form 940?

An IRS Form 940 is an important document to calculate the annual Federal Unemployment Tax Act (FUTA) tax applicable to a business.

This form helps to pay compensation to employees who lost their jobs. As this type of tax is paid by businesses, it is viable to not be cut off from the employee’s salaries.

An employer would need to file a Form 940 if they fulfill the following conditions:

  • They paid salaries of more than $1,500 to their employees on the quarter dates of a year.
  • They employed one or more of their employees to work in some form for 20 weeks or more in a year.

IRS Form 940 is also submitted to find out a business’ tax liability due to unemployment under the federal law in the past year. Furthermore, the form can also help determine the owed unemployment tax and the due or unpaid taxes from the last year.

That’s why it’s important to fill and submit an IRS Form 940 based on the information gathered from the previous year’s details. An employer needs to submit this document by the end of January every year.

Determining Base FUTA Tax

IRS Form 940 comprises 7 sections, out of which the second part is used for calculating the base FUTA tax for business. Businesses have to clear the payment for that tax before any modifications.

The FUTA tax obligates to pay taxes on the first $7,000 of every employee’s salary. To calculate the base FUTA tax, the employer would need to list all the payments provided to the employees till the last calendar quarter, removing all fringe benefits and payments.

Upon summing up the payments and multiplying them with the tax rate, you can determine the base FUTA tax.

Once the sum is found, it is multiplied by the effective tax rate, and the result is the base FUTA.

What Is IRS Form 941?

The IRS Form 941, also called Employer’s Quarterly Tax form, is an important document that employers submit to report withholdings under federal law from certain types of employees.

In other words, Form 941 obligates employers to report the exact number of employees from whom a certain amount is withheld. These holdings can include Medicare and Social Security withholdings.

Furthermore, employers use this form to report any kind of advance that an employee received on the income credits, if applicable.

In general, an employer has to file a Form 941 for paying salaries to an employee every calendar quarter. Even if no employee worked during some quarters, an employer still has to fill the form, except for seasonal employers who don’t hire or pay employees for specific quarters.

Such seasonal employers comprise the ones who need household or agricultural employees for a certain period.

Employers have to file a different form every quarter, which is why the IRS has proposed four deadlines for filing the form. These deadlines are April 30, July 31, October 31, and January 31 annually.

Also, the form filing date always ends on the last date of the month of every quarter.

IRS Form 940 Vs. Form 941

Internal Revenue Service

Confusing these 2 forms is more common than you may think.

The key difference between IRS forms 940 and 941 is that 940 does not apply to firms that don’t have employed workers. Despite no employees working for them, such companies are still viable to pay unemployment tax to the state.

Moreover, one needs to file form 940 once every year; on the other hand, form 941 needs to be filed quarterly.

Which One Should You File?

A majority of business owners need to file IRS Form 941, but there are a few exceptions, which are:

  • Employers who hire agricultural workers.
  • Employers who need workers for household duties.
  • Employers who require seasonal employees.

If you have filed Form 941 once and have no employees for a couple of quarters after that, you are still required to file the form as per the state laws. This is important to ensure that you don’t involve any form of penalty.

It’s important that you know the tax requirements and obligations in your state so that you file the right forms without chances of errors. Owing money to the IRS can get you into serious trouble if ignored.

Using the help of a capable tax consultant would be a good idea if you are not sure how to proceed with your filing operations. With their help, you will know what to do to ensure organised financial planning.