What's the difference between Form 941 and Form 940?

Form 941 is the quarterly return that reports withheld federal income tax plus the employer and employee shares of Social Security and Medicare. Form 940 is the annual return for federal unemployment tax (FUTA), which the employer pays entirely — employees never contribute to FUTA. You file four 941s a year and one 940.

What is the trust-fund recovery penalty?

The withheld income tax and the employee share of FICA are considered trust-fund taxes — money you hold in trust for your employees and the government. If a business fails to remit them, the IRS can assess a Trust Fund Recovery Penalty equal to 100% of the unpaid trust-fund amount against any responsible person individually, piercing the corporate shield.

How do I know if I'm a monthly or semiweekly depositor?

The IRS assigns your schedule based on the total taxes you reported during a lookback period. Report $50,000 or less and you deposit monthly, by the 15th of the following month. Report more than $50,000 and you deposit semiweekly, on a Wednesday or Friday schedule tied to your payday. A single day's liability of $100,000 or more triggers a next-day deposit regardless.

What is the FUTA tax rate?

The gross FUTA rate is 6.0% on the first $7,000 of each employee's annual wages. Employers who pay state unemployment tax on time generally receive a credit of up to 5.4%, dropping the effective FUTA rate to 0.6% — about $42 per employee per year. States with unpaid federal unemployment loans can lose part of that credit.

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Tax Compliance

Payroll Tax Compliance: Form 941, Form 940, and the Trust-Fund Trap

Payroll taxes aren't your money — you hold them in trust for your employees and the government. Here's how Form 941, Form 940, and deposit schedules work, and why unpaid withholding is the one penalty the IRS can pursue you for personally.

SMAART Tax Team

February 24, 2026

6 min read

|Reviewed by Lisa Terrell, Enrolled Agent