Under the current federal tax system, employers are required to pay a Federal Unemployment Tax Act (FUTA) tax. The funds collected by the Internal Revenue Service (IRS) from this tax, together with state unemployment tax collections, are made available to workers who have recently lost their jobs in the form of unemployment compensation. See Internal Revenue Service, General Instructions: Understanding Form 940, “What’s the Purpose of Form 940?,” available at https://www.irs.gov/instructions/i940/ch01.html.
Form 940 is the form an employer must file for reporting purposes when remitting payment of the FUTA tax to the IRS. The tax applies to the first $7,000 you pay to each employee in a given calendar year net of payments exempt from FUTA taxation. Keep in mind that even if you have not laid off any employees in the recent past, you still need to file Form 940 if you paid $1,500 or more to employees in the last two calendar years, or if you had “one or more employees for at least some part of a day in any 20 or more different weeks in 2011 or 20 or more different weeks in 2012.” Id. at “Who Must File Form 940?” The rules are different for household employees, and there are special filing provisions for businesses being sold, acquired or closed.
Employers, whether individuals or businesses, must also file IRS Form 941, Employer’s Quarterly Federal Tax Return, four times per year if that employer operates a business and employs people. Seasonal employers, household employers, and farm employers may be exempt from the Form 941 filing requirement. See Internal Revenue Service, Instructions for Form 941, “Who Must File Form 941?,” available at https://www.irs.gov/instructions/i941/ch01.html.
Employers will use Form 941 to report wages that have been paid, tips received by employees, withheld federal income tax, the employer’s and employees’ share of social security and Medicare taxes as well as any quarterly adjustments including sick pay, tips, group-term life insurance, etc., and credit for COBRA payments. That said, keep in mind that Form 941 is not to be used to report withhold of non-payroll payments such as pensions or annuities. Form 941 is filed every three months and is due at the end of every month following the end of a quarter.
For Form 940 and Form 941, where the employer must file will depend upon whether the employer is remitting payment with the form itself or not.
Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS LAW at (619) 595-1655.