The IRS provides an array of forms that are designed to help small business owners with tax documentation. Forms 940 and 941 are two of the most commonly used, so it is important for you to know what they entail.
Employers must be aware of the distinctions between the IRS’s various forms, including Form 940, 941, and 944, to avoid significant and costly errors.
Here are the answers to some frequently asked questions about IRS Form 940 and 941.
What is IRS Form 940
The IRS Form 940 is used to compute a business’s annual Federal Unemployment Tax Act (FUTA) tax, which is intended to help pay state unemployment compensation for employees who have been unemployed. Since this tax is levied on employers, it is not subtracted from employee earnings.
When employers need to file IRS form 940, they will have to do it when they meet the following conditions:
- They paid some employees more than $1,500 in a 3 month period.
- They had at least one employee who worked for at least 20 weeks of the year.
The IRS Form 940 is used to calculate the amount of federal unemployment tax liability for a company from the prior year.
It’s also used to calculate the amount of unemployment tax that must be paid for the previous year, as well as any outstanding and past unpaid unemployment taxes.
The IRS form 940 should be completed and submitted by the end of February, based on the company’s data from the previous calendar year.
How to Calculate Base FUTA Tax
There are 7 parts of IRS form 940 and part two decides how much a company has to pay before any adjustments.
If your employee makes less than $7,000 a year, they don’t have to pay taxes on money they earn from work. But if they make more than $7,000 a year in total for the last calendar year, then all of that income is taxable. You should list how much money each person made and also any payments.
After the sum is calculated, it is multiplied by the effective tax rate to find the base FUTA tax.
What is IRS Form 941
The Employer’s Quarterly Tax Form is a form used by employers to report the taxes they withheld from most types of employees.
This form requires employers to report how many employees they have, how much is withheld from each person, and the amount of Social Security withholdings.
It is also used to report any advances on earned income credits that are paid to employees.
Generally, any person who pays wages to an employee must file an IRS Form 941 every quarter. Even when there are no employees in some of the quarters, they still need to file it.
The only exceptions to this filing requirement are for seasonal employers who do not pay employee wages during one quarter, employers of household employees, and employers of agricultural employees.
Employers must meet four filing deadlines set forth by the IRS in order to submit quarterly forms. April 30, July 31, October 31, and January 31 are the IRS’s four quarterly filing due dates. The deadline is always the last day of the month after the quarter comes to a close.
What is IRS Form 944
The United States Internal Revenue Service Form 944 is a report that allows employers and the IRS to keep track of how much income tax and Federal Insurance Contribution Act (FICA) tax they owe to the federal government on an annual basis.
FICA taxes are split between the employer and employee. Businesses use Form 944 to report how much they paid in FICA taxes that came from the worker’s paycheck and how much they paid in FICA taxes for their own paychecks.
Only employers whose total liability for the year is less than $1,000 are asked to file Form 944. That means if you paid wages to a W-2 employee and owe $1,000 or less in withholding taxes and FICA taxes for the year, then you need to file Form 944.
Employers are mailed a notification from the IRS advising them whether or not they can use this form instead of Form 941, based on their prior tax liability. In the event that they were not advised to file Form 944, they may instead fill out Forms 941 quarterly.
How to Make a Difference between IRS Form 940, 941, and 944
There are differences between these types that employers must consider, despite their apparent similarities.
The IRS Form 940 is submitted annually and records an employer’s Federal Unemployment (FUTA) tax obligation, which is a tax levied only on employers.
The IRS form 941 is required to be filed every quarter, and it reports federal income tax withholding and Federal Insurance (FICA) contributions.
The main distinction between Form 940 and 941 is that Form 940 documents FUTA tax, which is paid exclusively by the employer. In contrast to this, Form 941 represents withholding and shared taxes that are divided equally between the employee and employer.
The IRS Form 944 is a replacement for the IRS Form 941, which is used to report FICA and income tax withholding to the IRS.
However, employers who have an annual FICA and withholding tax liability of less than $1,000 use IRS Form 941. As a result, whether employers utilize IRS Form 941 or 944 is dependent on their overall income and FICA tax owed for a year.
Need help with IRS Forms Management
Employers must be tax compliant by following IRS forms and their differences, as well as ensuring that they are submitted correctly and on time.
Failure to follow through and maintain a proper payroll system may result in hefty fines, and filling out paperwork is necessary to avoid unintentional underpayment of taxes, which comes with penalties.
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