As a small business owner, if there’s one thing you never have a shortage of, it’s tax forms. From payroll taxes to income taxes, it can be a challenge just to identify which forms are relevant to you, let alone going through the process of filing these forms.
One such form is Federal Form 940, a major payroll form almost all employers need to file. While Federal Form 940 deals with unemployment taxes, it can be challenging to identify exactly when to use Federal Form 940 and what steps to take to file it accurately and on time.
For that reason, let’s examine what Federal Form 940 is used for and what it means for your business!
What is Federal Form 940?
Federal Form 940 relates to the Federal Unemployment Tax Act (FUTA). Under this act, employers have to pay a federal unemployment tax, which is how the government funds workers who go on unemployment. You’ll use Form 940 to report the wages that your full and part-time employees have earned throughout the tax year, and then your appropriate FUTA tax is calculated based on those wages.
If FUTA tax reporting feels overwhelming, don’t worry! ConnectPay specializes in helping small businesses solve payroll and tax problems of all shapes and sizes – including FUTA reporting. Below we’ll walk you through everything you need to know about Federal Form 940: how to tell if you need to file Form 940, how it differs from similar forms, how to file it appropriately, and any penalties you may face if you file incorrectly.
If you still feel unsure and would like more payroll and tax, our team would love to work with you. You can set up a meeting here to learn how to solve your tax problems for good!
Who Needs to File Federal Form 940?
You’ll need to file Federal Form 940 if you paid at least $1,500 worth of wages to your employees in a single quarter over the previous tax year OR if you had at least one employee work partially or full-time for 20 or more weeks during a calendar year.
Employers exempt from filing Federal Form 940 include nonprofits, religious organizations, 501(c)(3) firms, and businesses that only employ independent contractors with no W2 employees. For more information on whether you could be exempt from filing Federal Form 940, you can find comprehensive guidelines on the IRS website.
How to File
Form 940 is filed annually and due by January 31st every year. Since the current FUTA tax rate is 6.0% of the first $7,000 you paid to each employee, you’ll need to know the number of employees you had over the past year and the total wages you paid to every employee. You’ll also want to know how much in State Unemployment Tax Act (SUTA) taxes you paid over the year, as you could receive a tax reduction of up to 5.4%, dropping your FUTA tax rate down to as low as 0.6% instead.
Once you have all of your information together, you can file Federal Form 940 yourself online or by mailing your form and payment directly to the IRS. However, keep in mind that one of the best ways to calculate payroll taxes quickly and accurately is by working with an accountant or payroll company who can file on your behalf. If you file Federal Form 940 late, there’s a 5% penalty for each month you’re late, meaning that essentially, you’ll be charged 5% interest on the unpaid tax amount. By partnering with a payroll company with an in-house tax team – like ConnectPay – your FUTA taxes will be automatically deducted from your bank account, keeping you on track and safeguarding your business from potential payroll tax liabilities.
Form 940 vs Form 941 vs Form 944
You may have noticed that there are a lot of forms that begin with 94 – but are they all related?
Forms 941 and 944 are a little different from the previously discussed Form 940. Form 941 is a quarterly tax form that reports income taxes, Social Security and Medicare taxes withheld from an employees’ paychecks, and an employer’s own portion of Social Security and Medicare taxes. Form 944 is an alternative version of Form 941, which is instead filed annually and intended for small employers who have tax liabilities under $1,000. You’ll need to file both Federal Form 940 and either Form 941 or Form 944.
If you’re curious to learn more about Form 941, check out our related read: What is 941 Schedule B?
Processes for Filing Federal Form 940 and Beyond
Following the instructions and processes outlined above should give you all the tools you need to file your Federal Form 940 with confidence. However, we know that Form 940 is just the tip of the iceberg when it comes to small business tax processes. ConnectPay specializes in small business payroll, and we understand how challenging it can be to keep all the regulations and requirements straight. That’s why we’ve created our free resource, the Connected Guide to Small Business Payroll. Download the guide today to simplify your payroll struggles!