If you’re running a business, payroll taxes are an unavoidable part of the job. Two key forms that employers must file with the IRS are Form 941 and Form 940. These forms report and remit crucial employment taxes, ensuring compliance with federal regulations. However, managing payroll tax filings can be complex, time-consuming, and prone to costly errors.
That’s where a Professional Employer Organization (PEO) can make life easier. When you partner with a PEO, you no longer have to worry about filing Forms 941 and 940—the PEO takes care of it for you due to the co-employment relationship. Let’s break down what these forms are and how a PEO simplifies the process.
What is IRS Form 941?
Form 941, the Employer’s Quarterly Federal Tax Return, is used by businesses to report:
- Employee wages paid during the quarter
- Federal income taxes withheld from employee paychecks
- Social Security and Medicare taxes (both employer and employee portions)
- Any adjustments for sick pay, tips, or overpayments
Employers must file Form 941 four times a year (every quarter). If the form is not filed on time or contains errors, the business may face penalties from the IRS.
What is IRS Form 940?
Form 940, the Employer’s Annual Federal Unemployment (FUTA) Tax Return, reports and pays unemployment taxes under the Federal Unemployment Tax Act (FUTA). Unlike Form 941, which is filed quarterly, Form 940 is filed once a year to report:
- The total FUTA taxable wages paid to employees
- Any applicable credits for state unemployment tax contributions
- The employer’s final FUTA tax liability
Failure to file Form 940 correctly can result in IRS penalties and additional financial liabilities.
How a PEO Eliminates the Need to File Forms 941 and 940
When you partner with a PEO, your business no longer has to worry about these filings. Here’s why:
1. The PEO Becomes the Employer of Record
A PEO operates under a co-employment model, meaning that it assumes responsibility for payroll tax compliance. This includes filing and remitting 941 and 940 tax forms on behalf of your business.
2. The PEO Handles All Payroll Tax Liabilities
Instead of tracking IRS deadlines, calculating tax withholdings, and processing payments yourself, the PEO does it all. This reduces the risk of missed filings, miscalculations, or penalties.
3. Reduced IRS Audits and Compliance Risks
PEOs specialize in payroll tax compliance. By leveraging their expertise, you minimize audit risks and ensure that employment taxes are handled correctly.
4. More Time to Focus on Growing Your Business
Managing payroll tax filings takes valuable time and resources. With a PEO, you can focus on your business rather than dealing with complex tax filings and compliance issues.
Final Thoughts
Filing Forms 941 and 940 is a crucial but burdensome responsibility for business owners. By working with a PEO, you can eliminate the stress of payroll tax compliance, avoid costly mistakes, and focus on growing your business.
If you’re ready to offload payroll tax burdens and streamline your HR operations, consider partnering with Pinnacle Employee Services today.
Interested in Learning More?
Contact us today to see how our PEO services can help your business stay compliant and efficient.