Form 940 vs. 941: Filing, Deposits, and Payroll Tax Penalties

The difference between Form 940 and Form 941 comes down to what tax each one reports and how often. Form 941 is a quarterly return covering the federal income tax you withhold from paychecks plus the Social Security and Medicare taxes shared between you and your employees. Form 940 is an annual return covering only the federal unemployment (FUTA) tax, which you pay entirely on your own. Most employers with W-2 staff file both.

The Core Differences at a Glance

The two forms look similar on the surface because both are federal employment tax returns, but almost everything else about them differs.

Filing frequency: Form 941 is filed four times a year. Form 940 is filed once a year.
Taxes reported: Form 941 covers federal income tax withholding, Social Security, and Medicare. Form 940 covers only FUTA.
Who bears the cost: Social Security and Medicare are split between employer and employee, and income tax withholding comes from the employee’s wages. FUTA is paid entirely by the employer and is never withheld from wages.¹
Wage base: The Social Security portion of Form 941 applies to the first $184,500 per employee in 2026, with no cap on Medicare. FUTA on Form 940 applies only to the first $7,000 per employee.
Typical cost per employee: FICA obligations can reach thousands of dollars per employee per year. The maximum FUTA liability is $42 per employee at the 0.6% net rate.

What Form 941 Reports

Form 941 reconciles three separate taxes each quarter: the federal income tax withheld from employee paychecks, Social Security tax, and Medicare tax. The form compares your total quarterly liability against the deposits you already made during the quarter.²

Quarterly deadlines fall on the last day of the month after each quarter ends: April 30, July 31, October 31, and January 31.³ When a deadline falls on a weekend or federal holiday, filing moves to the next business day.

Social Security and Medicare Rates

Social Security tax totals 12.4% of taxable wages, split evenly at 6.2% for you and 6.2% for the employee. For 2026, the tax applies only to the first $184,500 in wages per employee.⁴ Once someone crosses that threshold, you stop withholding and matching Social Security tax for the rest of the year.⁵

Medicare tax totals 2.9%, split at 1.45% each between employer and employee, with no wage cap.

Additional Medicare Tax

An extra 0.9% Medicare tax applies once you pay an individual employee more than $200,000 in a calendar year. Withholding begins in the pay period that pushes the employee past $200,000 and continues through December 31. Employers do not match this tax; the full 0.9% is the employee’s obligation, but you must withhold it and report it on Form 941, Line 5d.⁶

What Form 940 Reports

Form 940 reports federal unemployment tax, which funds the federal share of unemployment insurance. FUTA is entirely the employer’s cost. You never withhold any portion of it from employee wages.

The gross FUTA rate is 6.0%, but it applies only to the first $7,000 you pay each employee in the year. Most employers qualify for a credit of up to 5.4% for paying state unemployment taxes on time, which drops the effective federal rate to 0.6%. At that rate, the maximum works out to $42 per employee per year.⁷

Form 940 is due on January 31 following the calendar year. If you deposited all FUTA tax on time throughout the year, the deadline extends to February 10.⁸

Credit Reduction States

If your state borrowed from the federal government to pay unemployment benefits and hasn’t repaid within the allowed timeframe, the IRS designates it a credit reduction state. Employers there lose part of the usual 5.4% credit, so their net FUTA rate rises above 0.6%.⁹ The IRS publishes the list each November, and the additional tax shows up on Form 940 for that year.

Who Has to File Each Form

You must file Form 941 if you pay wages subject to federal income tax withholding or Social Security and Medicare taxes.³ That describes almost any business with W-2 employees.

You must file Form 940 if either of these is true: you paid at least $1,500 in wages during any calendar quarter, or you had one or more employees for any part of a day in 20 or more different weeks during the year. Full-time, part-time, and temporary employees all count toward both tests.¹

When Different Forms Apply Instead

A few employers use different returns entirely. Very small employers whose total annual liability for Social Security, Medicare, and withheld income tax is $1,000 or less may file Form 944 annually in place of Form 941, but only if the IRS notifies or approves you to do so.¹⁰ Agricultural employers report on Form 943 rather than Form 941.¹¹ Household employers who pay nannies, housekeepers, or other domestic workers report on Schedule H, filed with their personal Form 1040.¹²

How Deposits Work for Each

Filing a return and depositing the tax are two separate obligations, and the deposit rules for these forms don’t match.

Form 941 Deposits

How often you deposit Form 941 taxes depends on your payroll tax history during a lookback period covering July 1 of two years ago through June 30 of the prior year. If your total reported taxes during that window were $50,000 or less, you’re a monthly depositor and must deposit each month’s taxes by the 15th of the following month. If your liability exceeded $50,000, you’re a semiweekly depositor with tighter deadlines tied to your paydays.¹³

A separate rule overrides both schedules: if you accumulate $100,000 or more in taxes on any single day during a deposit period, you must deposit the full amount by the next business day. Hitting that threshold also makes you a semiweekly depositor for the rest of the calendar year and the following year.¹⁴

Form 940 Deposits

FUTA deposits follow a simpler quarterly pattern. If your cumulative FUTA liability exceeds $500 in any quarter, you must deposit it by the last day of the following month (April 30, July 31, October 31, or January 31).¹⁵ If your liability stays at $500 or less, you carry it forward to the next quarter. If it never crosses $500 by year-end, you can pay it with your Form 940 when you file.⁸

Penalties, and Why 941 Carries More Risk

The IRS applies three separate penalty structures for employment tax returns, and they can stack.

Filing Form 941 late triggers a penalty of 5% of the unpaid tax for each month or partial month the return is overdue, up to 25%.¹⁵ The same general structure applies to Form 940.

Filing on time but paying late runs 0.5% of the unpaid amount per month, up to 25%. An approved installment agreement drops the rate to 0.25% per month; ignoring a notice of intent to levy raises it to 1%.¹⁶

Missing a deposit deadline is penalized on a sliding scale: 2% if you’re 1 to 5 days late, 5% for 6 to 15 days, 10% beyond 15 days, and 15% once the IRS has issued a notice demanding payment. These apply to both Form 941 and Form 940 deposit obligations.¹⁷

The Trust Fund Recovery Penalty

One exposure sets Form 941 apart. Income tax and the employee share of FICA are trust fund taxes: money withheld from paychecks that belongs to the government, not your business. If those withheld amounts never get deposited, the IRS can assess the Trust Fund Recovery Penalty against any person who was responsible for paying them and willfully failed to do so.¹⁸

A responsible person is not only the owner. The IRS can pursue corporate officers, directors, shareholders with authority over funds, and even bookkeepers or payroll service providers with power to direct payments. Willfulness doesn’t require bad intent; choosing to pay other bills while knowing payroll taxes were due is enough. The penalty equals the full amount of the unpaid trust fund taxes, and the IRS can collect it from the responsible person’s personal assets through federal tax liens and bank levies.

FUTA on Form 940 is not a trust fund tax because nothing is withheld from employees. It doesn’t carry the same personal liability exposure, though the standard filing, payment, and deposit penalties still apply.

1
Internal Revenue Service. Topic no. 759, Form 940, Employers Annual Federal Unemployment (FUTA) Tax Return – Filing and Deposit Requirements
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Internal Revenue Service. About Form 941, Employer’s Quarterly Federal Tax Return
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Internal Revenue Service. Instructions for Form 941 (Rev. March 2026)
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Internal Revenue Service. Topic no. 751, Social Security and Medicare Withholding Rates
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Social Security Administration. Contribution and Benefit Base
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Internal Revenue Service. Form 941 (Rev. March 2026)
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Internal Revenue Service. href=”https://www.irs.gov/taxtopics/tc759″ target=”_blank” rel=”noopener”>Topic no. 759, Form 940, Employers Annual Federal Unemployment (FUTA) Tax Return – Filing and Deposit Requirements
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Internal Revenue Service. Instructions for Form 940 (2025)
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Internal Revenue Service. FUTA Credit Reduction
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Internal Revenue Service. About Form 944, Employer’s Annual Federal Tax Return
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Internal Revenue Service. About Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees
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Internal Revenue Service. About Schedule H (Form 1040), Household Employment Taxes
13
Internal Revenue Service. Topic no. 757, Forms 941 and 944 – Deposit Requirements
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Internal Revenue Service. Employment Tax Due Dates
15
Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
16
Internal Revenue Service. Failure to Pay Penalty
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Internal Revenue Service. Failure to Deposit Penalty
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Internal Revenue Service. Employment Taxes and the Trust Fund Recovery Penalty