As an employer, understanding the different forms and their purposes is crucial to ensuring compliance and avoiding penalties. Typically, your payroll provider will assist with filing these forms, and this article provides a summary of Forms 940, 941, and 944.
Form 940
Form 940, or the Employer's Annual Federal Unemployment Tax Return, is a mandatory tax document employers use to report and remit their Federal Unemployment Tax Act (FUTA) taxes to the Internal Revenue Service (IRS).
A business must file Form 940 if it paid at least $1,500 in wages during any calendar quarter (January through March, April through June, July through September, and October through December) or the business employed one or more employees for any part of 20 or more different weeks in the current or previous year. Form 940 is due on January 31st, following the tax year.
Form 941
Employers use Form 941 to:
- Report income taxes, Social Security tax, or Medicare tax withheld from employees' paychecks
- Pay the employer's portion of Social Security or Medicare tax
You're required to file a separate Form 941 for each quarter: first quarter (January through March), second quarter (April through June), third quarter (July through September), and fourth quarter (October through December). Form 941 is due quarterly by the last day of the month following the end of the quarter.
If you don’t have any employees for the previous quarter, you still need to report that you didn’t have any tax withholdings within that quarter through this form. However, there are a few exceptions, including employers of seasonal employees, household employees, or farm employees. However, other IRS forms may be required.
Form 944
Employers are required to file Form 944 if their annual tax liability is less than $1,000 for Social Security, Medicare, and withheld federal income tax. These employers will file Form 944 annually instead of every quarter and are usually smaller employers. Form 944 is a simplified tax return that combines the reporting requirements of Form 941 and Form 940 into a single annual return.
If an employer's tax liability and withheld federal income tax exceed $1,000 per year, they must use Form 941 and file it quarterly.
Difference between quarterly payroll taxes and quarterly tax estimates
Payroll tax is a tax the government levies on employers and employees to fund Social Security, Medicare, and FUTA. This tax applies specifically to wages reported on W-2 forms. As mentioned above, payroll taxes cover only Social Security, Medicare, and FUTA. On payroll checks, there is a withholding tax component paid entirely by the employee that goes towards your income taxes.
The IRS requires individuals to pay their income taxes each quarter. Quarterly tax calculations and payments go towards income taxes. These payments reduce the tax liability that is calculated when taxes are filed on April 15th. Payroll tax payments have no impact on your income taxes.