Form 940 vs Form 941: Which payroll tax form do you file?

The first time most employers encounter payroll taxes, they discover that there is not one form to file but several, each with its own schedule, rate, and calculation. Form 940 and Form 941 are the two most commonly confused, and the confusion makes sense: both are payroll-related federal forms, both involve taxes calculated on employee wages, and both are filed with the IRS. Beyond that, they cover entirely different taxes, operate on entirely different schedules, and serve entirely different purposes.

What Form 940 is and what it covers

Form 940 is the Employer's Annual Federal Unemployment (FUTA) Tax Return. It reports and reconciles the Federal Unemployment Tax Act tax that an employer pays on behalf of its employees.

FUTA is an employer-only tax. Employees do not pay it, and it is not withheld from employee paychecks. The employer bears the full cost.

The FUTA tax rate for 2025 and 2026 is 6.0% of taxable wages. However, most employers pay state unemployment insurance (SUI or SUTA) separately to their state, and the IRS gives employers a credit of up to 5.4% against the federal FUTA rate when state unemployment taxes are paid in full and on time. In practice, this means most employers who are current on their state unemployment tax pay an effective FUTA rate of 0.6% on the federal return.

FUTA applies only to the first $7,000 of each employee's wages in a calendar year. Once an employee's wages cross $7,000 for the year, that employee's wages are no longer subject to FUTA, regardless of how much more they earn.

One qualification on the 0.6% effective rate: it assumes the employer qualifies for the full 5.4% state credit, which requires paying state unemployment taxes in full and on time. Some states have outstanding federal unemployment fund advances that result in FUTA credit reductions, meaning employers in those states pay a higher effective rate. California carried a 1.2% credit reduction in 2025, for example. Employers should check their state's status on Schedule A (Form 940) for the applicable tax year before finalising payroll budgets.

When Form 940 is filed

Form 940 is an annual return, covering the full calendar year from January 1 through December 31. For the 2025 tax year, the Form 940 due date is February 2, 2026. For the 2026 tax year, the due date is February 1, 2027.

There is one important modifier: if an employer deposits all FUTA tax when due throughout the year, the IRS allows an additional 10 calendar days to file the return. In that case, the filing deadline for the 2025 tax year becomes February 10, 2026.

When FUTA tax is deposited

FUTA tax is not paid monthly or every quarter by default. The deposit obligation only triggers when accumulated FUTA tax liability for the year exceeds $500.

The calculation is done quarterly. At the end of each calendar quarter (March 31, June 30, September 30, and December 31), the employer checks whether the cumulative FUTA tax liability so far in the year has exceeded $500. If it has, a deposit is due by the last day of the month following the end of that quarter: April 30, July 31, October 31, or January 31.

If the liability at the end of Q4 is $500 or less, the employer can either deposit the amount or pay it directly with the Form 940 by the filing deadline.

This is different from Form 941 deposit rules, which are based on lookback period and run on a monthly or semi-weekly schedule regardless of the amount owed.

What Form 941 is and what it covers

Form 941 is the Employer's Quarterly Federal Tax Return. It reports three distinct taxes, all withheld from employee wages or matched by the employer, every quarter.

Federal income tax withheld from employee paychecks. Based on each employee's Form W-4 elections. This varies by employee and changes if they update their withholding.

Employee share of Social Security and Medicare taxes (FICA). The employee pays 6.2% of wages up to the Social Security wage base ($176,100 for 2025, $184,500 for 2026) in Social Security tax, and 1.45% of all wages with no cap in Medicare tax. Both are withheld from the employee's paycheck.

Employer share of Social Security and Medicare taxes (FICA). The employer matches the employee's Social Security and Medicare contributions exactly: 6.2% and 1.45% respectively. This is the employer's own cost, not a withholding.

Additional Medicare tax. Employers must also withhold an additional 0.9% Medicare tax on wages paid to any individual employee that exceed $200,000 in the calendar year. The employer does not match this additional amount.

When Form 941 is filed

Form 941 is a quarterly return. For calendar-year employers, the four returns cover:

If all taxes for the quarter were deposited on time and in full, employers receive a 10-calendar-day extension to file the return.

When Form 941 deposits are made

Most employers deposit Form 941 taxes on a monthly or semi-weekly schedule, determined by the business's total payroll tax liability during a lookback period. The deposit schedule is assigned by the IRS and must be followed consistently through the year.

A monthly depositor deposits the combined FICA and withheld income tax from each month by the 15th of the following month. A semi-weekly depositor deposits by Wednesday for payrolls paid on Wednesday through Friday, and by Friday for payrolls paid on Saturday through Tuesday.

A small exception: employers whose total estimated annual payroll tax liability is $1,000 or less may qualify to file Form 944 annually instead of Form 941 quarterly. The IRS notifies employers of this eligibility.

There is also a de minimis exception worth knowing. If Form 941 line 12 shows a tax liability under $2,500 for the current quarter, and the prior quarter's liability was also under $2,500, and no $100,000 next-day deposit obligation arose during the current quarter, the employer may pay the balance with a timely filed Form 941 rather than following the normal deposit schedule. This exception is common for very small employers with modest payroll.

The key differences at a glance

How they interact during the year

Form 940 and Form 941 run on separate tracks throughout the year but come together at year-end in a predictable way.

Every pay period, the employer runs payroll, withholds FICA and income taxes from each employee's paycheck, adds the employer's own FICA match, and deposits those funds according to the Form 941 deposit schedule. This happens throughout Q1, Q2, Q3, and Q4, with a quarterly Form 941 reconciling each period.

Simultaneously, the employer is accumulating FUTA liability at 0.6% on each employee's wages until that employee hits the $7,000 threshold. If the accumulated FUTA liability crosses $500 in any quarter, a separate FUTA deposit is due for that quarter.

At year-end, the employer files Form 940 for the full year, reconciling all FUTA deposits made through the year and paying any remaining balance. The Form 941 for Q4 is also due in late January, covering October through December.

The two forms are never combined. They report different taxes, carry different rates, and are calculated on different wage bases. An employer who has ever tried to pay their FUTA liability on a quarterly Form 941 will find the tax was misapplied and needs to be corrected.

What triggers each form

An employer must file Form 940 for a calendar year if it paid wages of $1,500 or more in any quarter, or had at least one employee for any part of a day in any 20 or more different weeks during the year. Agricultural employers and household employers have separate rules.

An employer must file Form 941 for each quarter in which it paid wages subject to FICA or withheld federal income tax. Even a quarter with zero wages generally requires a zero return to be filed unless the employer has formally notified the IRS that employment has ceased or the business is seasonal.

One practical note: both forms must be filed even in quarters or years when no taxes are owed. The IRS treats a missing return as a compliance failure, and the penalty for failure to file is assessed on the unpaid tax amount, at 5% per month up to 25% for Form 941.

How Inkle helps

Inkle's bookkeeping service keeps employer payroll records current and reconciled each month, which means the figures that go onto Form 940 and Form 941 come from a ledger that has already been closed rather than from a payroll export assembled under deadline pressure. For businesses filing both forms for the first time, Inkle's tax team confirms the deposit schedule, tracks quarterly FUTA liability, and coordinates the annual Form 940 reconciliation.

Learn more about Inkle's tax services.

Frequently asked questions

What is the difference between Form 940 and Form 941? 

Form 940 is the Employer's Annual Federal Unemployment (FUTA) Tax Return, filed once a year to report and pay the federal unemployment tax that employers pay on behalf of employees. Form 941 is the Employer's Quarterly Federal Tax Return, filed four times a year to report Social Security and Medicare taxes withheld from employee wages, the employer's matching share of those taxes, and federal income tax withheld from paychecks. They cover different taxes, operate on different schedules, and are calculated on different wage bases.

When is Form 940 due? 

Form 940 is due January 31 for the prior calendar year. If all FUTA tax was deposited on time and in full throughout the year, the deadline extends to February 10.

How often is Form 941 filed? 

Form 941 is filed quarterly, with due dates of April 30, July 31, October 31, and January 31 for the four quarters of the calendar year.

Do employers pay FUTA tax out of employee wages? 

No. FUTA is an employer-only tax and is never withheld from employee paychecks. The employer pays it entirely from its own funds at a rate of 6.0%, which reduces to 0.6% for most employers after applying the 5.4% credit for timely state unemployment tax payments.

What is the FUTA wage base? 

FUTA applies only to the first $7,000 of each employee's wages in a calendar year. Once an employee's cumulative wages for the year exceed $7,000, that employee's wages no longer contribute to the employer's FUTA liability.