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Understanding Form 940 and Form 941 for Smooth Tax Filing

Jerika Holton
Jul 14, 2023
5 min

When it comes to fulfilling your tax obligations as an employer, navigating through the complex landscape of filing IRS Form 940 (Employer's Annual Federal Unemployment (FUTA) Tax Return) and 941 (Employer's Quarterly Federal Tax Return) can be a daunting task. These forms are essential for reporting federal unemployment taxes and quarterly employment tax liabilities, so they require meticulous attention to detail to avoid costly mistakes. It is critical to understand common mistakes and learn how to sidestep them, you can ensure a seamless tax filing process while staying compliant with the IRS regulations.  

What is the Difference Between Form 940 and 941?

Employers use Form 940 to declare the yearly Federal Unemployment Tax Act (FUTA) tax. Alongside state unemployment tax systems, the FUTA tax supplies the necessary funds for providing unemployment compensation to individuals who are unemployed, most employers are required to pay these taxes. It's important to note that only employers are responsible for paying the FUTA tax, and it should not be collected or deducted from their employees' wages.

On the other hand, Form 941 needs to be submitted quarterly to report the income taxes, Social Security tax, and Medicare tax that have been withheld from employees' paychecks. Additionally, the 941 forms are used to fulfill the employer's obligation of paying their share of the Social Security or Medicare tax.

What to Look Out For when Filings Forms

When dealing with Form 940 and Form 941 there are several common mistakes that taxpayers make. Here are some of them:

Incorrect or Incomplete Information

When filling out forms, it is critical to review your information to ensure each required field is completed and the information is accurate. Be sure to double-check your employer identification number (EIN), business name, address, and more. In fact, the IRS noted that incorrect company addresses have been one of the main causes of form rejections.

Calculation Errors

Errors in calculations can occur when determining the amounts of taxes owed or paid. It is important to make sure calculations, including wages, taxes withheld, and any credits or deductions claimed are accurate year around. The assistance of your payroll provider can help ensure payroll accuracy, so when it comes to year-end, you are prepared with the correct information.

Late or Missing Filings

Submitting the forms past the due date or failing to file them can result in penalties and interest charges. With the help of tax filing software, you can be aware of the deadlines for each form and submit them in a timely manner.  

Misclassification of Workers

Improper employee classification can lead to incorrect tax withholdings and potential legal and financial consequences, designating if a worker is an employee or a contract worker is important.

Neglecting to Sign and Date the Forms

You must sign completed forms. Unsigned or undated forms may be considered invalid, and the IRS may reject them.

How to Handle Corrections

According to the IRS if you miss the filing deadline, you will have to pay 5% of the unpaid taxes for each month or part of a month that a tax return is late. This can become a financial burden to your organization. For errors in the 941 form, the IRS has created the 94X-X form for organizations so they can correct errors on previously filed employment tax returns. The 94X-X form reflects the 941-form line-by-line so you can quickly correct errors. However, there is no "X" form for Form 940. By checking the amended return box in the top right corner of Form 940 you can, you can tackle corrections on previously filed returns.

You’re Not Alone, Greenshades Can Help

By leveraging payroll tax software providers like Greenshades, you can streamline the filing process into one simple workflow saving you time on tedious processes. With the use of automation and alerts to areas that require reviewing, reminders for upcoming deadlines, and e-filing capabilities you can mitigate the common filing mistakes.  

For more information about how Greenshades tax experts can assist you with filing Form 940, 941, and other year-end or quarterly tax forms contact sales, to learn about Greenshades Payroll Solutions.

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