Forms 941 + 940: Quarterly Payroll and Annual FUTA Returns Explained

Payroll Tax Returns Overview

Two federal payroll tax returns are required from every US employer with W-2 employees: Form 941 (filed quarterly) and Form 940 (filed annually).

Form 941 reports income tax withheld from employee wages, plus Social Security and Medicare taxes (FICA). It reconciles the employer's payroll deposits to actual liability for the quarter.

Form 940 reports federal unemployment tax (FUTA). It is filed once per year, in January for the prior calendar year. FUTA is an EMPLOYER-ONLY tax, not withheld from employee wages.

These are federal returns only. Each state with state income tax withholding and state unemployment insurance has separate state returns and deposit schedules.

Form 941: Quarterly Payroll Return

At a Glance

Item	Value
Form 941	Quarterly, last day of month after quarter ends
Form 940	Annual, January 31
FUTA wage base	$7,000 per employee per year
FUTA rate	6.0% with up to 5.4% state credit (effective 0.6%)
Deposit schedule	Monthly or semi-weekly (based on prior-year liability)

Form 941 is filed every quarter, due the last day of the month following the quarter end: April 30 (Q1), July 31 (Q2), October 31 (Q3), January 31 (Q4).

What 941 reports: total wages paid, federal income tax withheld, Social Security tax (6.2% employee + 6.2% employer on wages up to $176,100 in 2025), Medicare tax (1.45% employee + 1.45% employer on all wages, plus additional 0.9% on employee wages over $200,000), and any sick or family leave credits.

The form reconciles total taxes due for the quarter to total deposits made during the quarter. Any shortfall must be paid with the return. Any overpayment can be applied to the next quarter or refunded.

Required even with no payroll: if you have an active EIN and a payroll account but did not pay any wages in a quarter, you may still need to file Form 941 with zeros, unless you have notified the IRS you are no longer paying wages (final return checkbox).

Payroll Tax Deposit Schedules

Employers must DEPOSIT payroll taxes throughout the quarter, Form 941 is just the reconciliation. Two deposit schedules apply:

Monthly schedule: deposits due by the 15th of the following month. Applies to employers with total payroll tax liability of $50,000 or less in the lookback period (July of two years prior through June of prior year).

Semi-weekly schedule: deposits due Wednesday for wages paid Wednesday-Friday, and Friday for wages paid Saturday-Tuesday. Applies to employers with payroll tax liability over $50,000 in the lookback period.

Same-day rule: if accumulated payroll tax liability reaches $100,000 on any day, the deposit is due the NEXT BUSINESS DAY regardless of normal schedule.

Deposits must be made via the Electronic Federal Tax Payment System (EFTPS). Paper coupons are no longer accepted. Late deposits trigger penalties of 2-15% of the underpayment depending on lateness.

Form 940: Annual FUTA Return

Form 940 reports federal unemployment tax (FUTA). Filed annually by January 31 for the prior calendar year.

FUTA wage base: $7,000 per employee per year. Wages above $7,000 per employee are not subject to FUTA. This is much lower than the Social Security wage base.

FUTA rate: 6.0% of wages up to $7,000, less a credit of up to 5.4% for state unemployment taxes paid. Effective FUTA rate for most employers: 0.6% (6.0% - 5.4% = 0.6%).

Credit reduction states: states that have not repaid federal unemployment loans face a FUTA credit reduction. Employers in credit-reduction states pay an effective rate higher than 0.6%. Check the annual IRS credit-reduction state list before filing.

Quarterly deposits: required only if FUTA liability exceeds $500 at any point in the year. Otherwise FUTA can be paid with Form 940 in January.

Who Is Exempt from 941 / 940 Filing

Sole proprietors with no employees: no Form 941 or 940 required. Sole proprietor self-employment income is reported on Schedule SE (Form 1040), not on payroll returns.

S-corp or LLC owners who do not pay themselves a W-2 salary: this is a common compliance failure. If the entity has no W-2 employees (owner only, paying themselves via distributions), there is no payroll return requirement. BUT for S-corps with active owners, this is the "$0 reasonable salary" problem the IRS audits. Owners should be on W-2 payroll.

Household employers: separate rules under Schedule H (Form 1040) for nannies, housekeepers, etc.

Agricultural employers: separate rules under Form 943.

Most US LLCs and corporations with W-2 employees: 941 every quarter, 940 every year.

Common Payroll Tax Mistakes

Mistake 1: Missing a quarterly 941 deposit. Late deposits compound quickly. Penalties: 2% for 1-5 days late, 5% for 6-15 days, 10% for 16+ days, 15% if not paid within 10 days of IRS notice.

Mistake 2: Not depositing via EFTPS. The IRS no longer accepts paper deposit coupons. Mailing a check is not a deposit.

Mistake 3: Forgetting the Q4 941 has a different deadline. Q4 941 is due January 31 (same date as 940 and W-2/W-3 issuance), earlier than the other quarters.

Mistake 4: Issuing wrong W-2 amounts because year-end 941 doesn't reconcile to W-3. The total wages reported across the four quarters' 941s should match the W-3 total. Discrepancies trigger IRS notices and penalty calculations.

Mistake 5: S-corp owner not on payroll. If you elected S-corp and work in the business, you must pay yourself a reasonable salary via W-2, which triggers 941 and 940 filing obligations.

How File.Business Handles Payroll Returns

File.Business partners with payroll processors (Gusto, Rippling, ADP) to handle 941 and 940 filings as part of our payroll service. The payroll processor calculates withholdings, makes deposits via EFTPS, prepares 941 and 940 returns, and reconciles to W-2s at year end.

Standalone 941/940 service for clients on payroll processors we don't directly manage: $99 per quarterly 941 + $149 annual 940 reconciliation. We also handle Q4 W-2/W-3 reconciliation and any IRS notices that arrive.

Frequently Asked Questions

When is Form 941 due?

Quarterly: April 30 (Q1), July 31 (Q2), October 31 (Q3), January 31 (Q4). Q4 deadline is the same day as Form 940 and W-2 issuance.

When is Form 940 due?

January 31 of the year following the tax year, for federal unemployment tax (FUTA).

What is the FUTA tax rate?

6.0% on the first $7,000 of each employee's wages per year, less a credit of up to 5.4% for state unemployment taxes paid. Effective rate for most employers: 0.6%.

Do I have to deposit payroll taxes between quarterly 941 filings?

Yes. Deposits are made monthly or semi-weekly depending on prior-year liability. Form 941 is the reconciliation; deposits are the actual cash payment.

What if my S-corp has no W-2 employees and I take only distributions?

You should be on payroll. The IRS requires S-corp owners who work in the business to pay themselves a reasonable salary via W-2 before taking distributions. Once on payroll, 941 and 940 filings are required.

What is the penalty for late 941 deposits?

2% for 1-5 days late, 5% for 6-15 days, 10% for 16+ days, 15% if not paid within 10 days of IRS notice. Penalties compound quickly.

Can File.Business handle my payroll returns?

Yes. We partner with Gusto, Rippling, and ADP for full payroll service including 941 and 940 filings. Standalone service for clients on other processors: $99 per quarterly 941 + $149 annual 940 reconciliation.