What Is Form 940?
Some doctors spend years handling almost everything themselves, but a day often comes when they get to hire a few permanent employees. When this happens, they’re frequently surprised to learn that they’re required to file a Form 940. Even worse, this tax document must be turned in prior to the traditional “tax time” in April. Unfortunately, this isn’t the only confusing aspect for many practitioners.
At HR for Health, we understand that it is easy to get confused with many forms and documents to fill out; however, you do not need to go through this alone. Learn more about Form 940 below. Then, contact us today to speak to our team about how we can streamline this process for you.
What Is Form 940?
Employers from all industries need to file Form 940 every year to report and pay unemployment taxes to the Internal Revenue Service. These taxes help assist employees who have lost their jobs. Employers must pay any amount due from this form on their own—they cannot deduct the sum from employee wages.
Form 940 allows firms to report their annual Federal Unemployment Tax Act (FUTA) tax. In many cases, this isn’t the only unemployment tax you’ll need to pay. If you owe an amount federally, there’s a good chance your state also requires you to pay unemployment taxes. Your liability and what you’ve paid through the year will dictate whether you owe the tax later.
Who Has to File Form 940?
It’s a common misconception that every employer must pay unemployment taxes. While state employment laws vary drastically, the FUTA tax has specific rules regarding who owes. For instance, a psychiatrist who hires a bookkeeper at the end of the year will be in a very different position than a chiropractor with several full-time employees.
According to the IRS, the following two elements make up the general test of whether you need to file Form 940:
- You paid employees at least $1,500 in wages during a calendar year.
- You had temporary, part-time, or full-time employees for 20 or more weeks — even if they were only around for the day.
There are different rules regarding farm workers and household employees, but this won’t be a concern for most healthcare practitioners. The FUTA tax rate is 6% on the first $7,000 you pay each employee. If you paid state unemployment taxes, though, Form 940 typically allows you to take a credit that can drop your rate down to 0.6%.
The Indispensable Nature of Form 940 for Healthcare Practitioners
Even though healthcare practitioners and medical doctors have many forms they need to fill out regularly, it is critical not to overlook Form 940. Some of the most important reasons why this form is critical for your practice include:
High Turnover Rates in Medical Staff and Its Impact on FUTA Liabilities
Healthcare practices often experience high turnover rates due to the nature of temporary roles, such as traveling nurses or short-term administrative staff. These frequent staff changes can increase FUTA liabilities, especially when hiring multiple employees yearly. Practitioners must monitor wages paid to temporary and part-time employees to ensure compliance with unemployment tax requirements.
Differences Between Salaried Healthcare Professionals and Part-Time Administrative Staff
Salaried professionals, such as physicians and nurse practitioners, typically meet FUTA thresholds more quickly than part-time administrative staff due to their higher earnings. However, even part-time employees contribute to FUTA liabilities if their wages exceed $1,500 or work 20 or more weeks a year. To avoid errors, healthcare practitioners must understand how these distinctions affect unemployment tax obligations. This is where a streamlined HR department is critical.
Addressing Confusion Between FUTA and State Unemployment Taxes
Many healthcare employers confuse FUTA taxes with state unemployment tax requirements, leading to miscalculations. While FUTA taxes are federally mandated and reported on Form 940, state unemployment taxes vary by location and may have different thresholds or rates. These differences require careful tracking of payroll data to avoid overpayment or underpayment. Ensuring compliance with federal and state regulations is essential to avoid penalties and ensure proper employee coverage.
Why Is Filing Form 940 Important?
There are several reasons why you must file Form 940 correctly. They include:
IRS Penalties for Late Filings or Non-Payment
Failing to file Form 940 or pay FUTA taxes on time can result in significant IRS penalties. These fines may include a percentage of unpaid taxes, which increases the longer the payment is overdue. Non-compliance can quickly escalate, leading to financial strain for healthcare practices already operating on tight margins.
Negative Effects on Business Reputation and Financial Stability
Delinquent unemployment taxes can harm a medical practice’s reputation, making attracting or retaining staff difficult. In addition, unpaid FUTA taxes may lead to liens or other financial repercussions. Maintaining compliance safeguards both your finances and your professional standing.
Common Errors Healthcare Practitioners Make
It is easy to get confused with so many taxes, fees, and forms to fill out; however, it is critical to avoid some common mistakes. A few frequent pitfalls healthcare practitioners encounter with FUTA taxes include:
- Underestimating Part-Time Staff Contributions: Employers may forget to include part-time or temporary staff wages in their calculations, leading to underreporting.
- Misclassifying Independent Contractors: Treating employees as independent contractors when they don’t meet IRS criteria can result in penalties.
- Confusing FUTA With State Taxes: Misunderstanding federal and state tax distinctions can cause practitioners to miss deadlines.
- Failing to Track Seasonal Employees: Healthcare practices that hire seasonal staff often overlook their contributions to FUTA liabilities.
- Ignoring Wage Thresholds: Some practices fail to monitor when an employee exceeds the $7,000 FUTA wage limit.
- Late Quarterly Payments: Missing quarterly payments can lead to higher amounts owed at year-end and additional fines.
- Incorrect Filing Address: Sending Form 940 to the wrong IRS address causes delays and may result in penalties.
Avoiding these errors ensures smoother compliance with FUTA tax requirements and prevents costly mistakes. Remember, you do not need to deal with this alone. Do not hesitate to reach out to an expert for help if you need it.
How FUTA Taxes Are Used
FUTA taxes primarily fund unemployment compensation programs, providing financial support to employees who lose their jobs through no fault. These programs help individuals maintain financial stability during periods of transition. This safety net is particularly vital in industries like healthcare, where job stability can be uncertain for temporary and part-time staff.
Proper filing of Form 940 ensures former employees access these essential benefits. This supports your workforce and reinforces your practice’s commitment to fair employment practices. Complying with FUTA requirements benefits employers and employees by contributing to a system offering crucial financial assistance.
How to File Form 940
FUTA tax forms must be filed before January 31, unlike other business and employment taxes. However, if you paid these taxes during the year, the government gives you until February 10 to file. Those sending paper forms must check for the right mailing address. This can vary based on your location and whether you’re sending a payment.
To file online, you must check the list of vendors the IRS approves for e-filing business taxes. These can differ from individual tax providers, so checking before attempting to file is important. If you’re hoping to save some time down the road, read the instructions on Form 940 immediately.
You can pay these taxes quarterly!
Step-by-Step Guide to Filing Form 940
Filing Form 940 requires accuracy and attention to detail. A few steps to ensure proper compliance include:
- Determine Eligibility: Verify whether your practice meets the criteria for FUTA tax liability. This includes paying at least $1,500 in wages or having employees for 20+ weeks a year.
- Gather Payroll Records: Compile all employee wages paid during the calendar year. Include temporary, part-time, and full-time staff in your calculations.
- Calculate FUTA Tax Liability: Apply the 6% rate to the first $7,000 of each employee’s wages. Adjust for any state unemployment tax credits to lower your rate.
- Complete Form 940: Accurately fill out each section of Form 940, ensuring all information matches your payroll records.
- Choose a Filing Method: Decide whether to file electronically through an IRS-approved vendor or by mail. Ensure you use the correct address for paper submissions.
- Submit Payment: Pay any outstanding FUTA tax liability electronically or with a check in your mailed form.
- Review and Retain Records: Double-check your submission for errors and keep copies of all documents for your records.
Proper filing ensures compliance and prevents issues with the IRS. We would be pleased to help you ensure you fulfill your obligations properly and on time.
Amending IRS Form 940
If you need to change a form you filed in previous years, the IRS makes it simple. You only need to download a paper Form 940 — even if you originally filed it electronically — and fill it out with the right information. You’ll have to explain why the amended form is necessary and attach Schedule R, but there are no major hoops to jump through.
Ensure you indicate on the form that it is an amendment and include the tax year being corrected. It’s also crucial to attach supporting documentation that justifies the amendment, such as corrected payroll records or updated calculations. Keep a copy of the amended form and any supporting documents for your records if the IRS requests additional information. Submitting the amended form promptly can help avoid penalties or delays in resolving discrepancies.
Protect Your Medical Office – File Form 940 Timely!
No one enjoys doing taxes. That’s a simple fact of life. This added nuisance is especially annoying for those in an industry where professionals frequently exceed 10 hours of overtime work every week. Even if it makes you want to pull your hair out, filing all your taxes promptly is essential for continuing to care for your patients.
If you’re required to file Form 940, don’t procrastinate! Make sure you're protecting yourself and your employees!
FAQs
1. What is the purpose of Form 940?
Form 940 is used to report and pay the Federal Unemployment Tax Act (FUTA) tax, which funds unemployment compensation programs. Employers must file this form annually to remain compliant with IRS regulations.
2. Who is required to file Form 940?
Employers who pay at least $1,500 in wages during a calendar year or employ staff for 20 or more weeks in a year must file Form 940. This applies to both part-time and full-time employees but excludes independent contractors.
3. What is the deadline for filing Form 940?
The deadline to file Form 940 is January 31 of the following year. If you have already paid all FUTA taxes owed during the year, the IRS grants an extension until February 10.
4. How do state unemployment taxes affect Form 940?
If you pay state unemployment taxes, you may qualify for a credit that reduces your FUTA tax liability from 6% to as low as 0.6%. Properly documenting state tax payments is essential to claim this credit on Form 940.
5. Can I amend a previously filed Form 940?
Yes, you can amend Form 940 by downloading a paper version, marking it as an amendment, and attaching Schedule R with an explanation of the changes. Submit the updated form along with any supporting documents promptly to correct errors and avoid penalties.
Contact HR for Health for Help Filing Form 940 On Time and Properly
If you want to make sure that you do not miss deadlines or make mistakes on forms, we can help you. At HR for Health, we have experience filing countless forms for clients, including Form 940. It would be our pleasure to help you as well. Contact us today to speak to our team, and let us help you reduce your legal and regulatory liability.