Form 940 and 941

In the context of US taxes, Forms 940 and 941 are both related to reporting and paying various payroll taxes by employers, but they serve different purposes:

Form 940: This is the Employer's Annual Federal Unemployment (FUTA) Tax Return. It is used to report and pay the federal unemployment tax (FUTA) for the entire calendar year. Most employers pay FUTA tax unless they are exempt, but employees themselves do not directly pay this tax. It contributes to the unemployment compensation system used to support workers who lose their jobs.

Form 941: This is the Employer's Quarterly Federal Tax Return. It is used to report and pay various federal payroll taxes on a quarterly basis (four times a year). These taxes typically include federal income tax withheld from employees' wages, Social Security tax, Medicare tax, and some other optional employer taxes.

Reconciliation: Reconciliation is the process of comparing and verifying the amounts reported on Forms 941 with other relevant sources, such as your payroll records and Forms W-2 (Wage and Tax Statements) issued to employees. This ensures that everything is reported accurately and consistently.

Why reconcile? Reconciliation is important for several reasons:

• Accuracy:?It helps to avoid errors and discrepancies in your payroll and tax reporting,?which can save you time and money later in the form of penalties or audits.
• Compliance:?It ensures that you are fulfilling your legal obligations as an employer to report and pay the correct amount of taxes.
• Peace of mind:?Knowing that your records are accurate can give you peace of mind and avoid potential future worries.

How to reconcile: Here are the general steps for reconciling Forms 941:

1. Gather your materials:?You will need your Forms 941 for the quarter being reconciled,?your payroll records for the same period,?and your Forms W-2 for the year.
2. Compare totals:?Compare the total wages reported on Form 941 with the total wages paid according to your payroll records.?These should match exactly.
3. Compare individual amounts:?Compare the federal income tax withheld,?Social Security tax,?and Medicare tax for each employee on Form 941 with the amounts withheld from their paychecks and reflected on their Forms W-2.?Look for any discrepancies.
4. Investigate and adjust:?If you find any discrepancies,?investigate the cause and make any necessary adjustments to your records or future submissions.?You may need to file corrected Forms W-2C if there are significant errors.The IRS provides a helpful Year-end Reconciliation Worksheet for Forms 941, W-2, and W-3 that can guide you through the process: https://www.irs.gov/pub/irs-pdf/i941.pdf.This IRS video also provides a good overview of reconciling Forms 941/W-3/W-2: https://www.irsvideos.gov/Governments/Employers/10MinutesOnReconcilingForms941W-3W-2ToGrossPayroll.