IRS Form 941, Employer’s Quarterly Federal Tax Return

  • IRS Form 941, Employer’s Quarterly Federal Tax Return

    Posted by Kevin Young on October 25, 2022 at 3:56 am

    If you operate a business and have employees working for you, then you likely need to file IRS Form 941, Employer’s Quarterly Federal Tax Return, four times per year. As an employer, you are responsible for withholding federal income tax and other payroll taxes from each employee’s paycheck and remitting it to the IRS. Each Form 941 you file reports the total amount of tax you withheld during the quarter.

    Who must file Form 941?

    Generally, any person or business that pays wages to an employee must file a Form 941 each quarter, and must continue to do so even if there are no employees during some of the quarters. The only exceptions to this filing requirement are for seasonal employers who don’t pay employee wages during one or more quarters, employers of household employees and employers of agricultural employees.

    IRS tax payments

    Most U.S. employers are required to file quarterly Federal Tax Return (One exception: Some smaller companies are eligible to file an annual return, using Form 944. Your tax advisor will tell you if your business qualifies).

    The 941 reports wages your company has paid and federal income tax withheld. It also lists social security and Medicare taxes withheld, and your company’s share of those social security and Medicare taxes. Of course, your quarterly tax payments are due with the form.

    Completing Form 941

    Every time you prepare a Form 941 for the quarter, you must report the number of employees you have, the total wages you paid and the amount of taxes you withheld to arrive at the amount you must send to the IRS. Before starting the return, you need your payroll records plus documentation for any taxable tips your employees report to you.

    When you calculate the amount to send to the IRS, in addition to federal income tax, the payment must reflect 6.2 percent of each employee’s wages, up to $132,900 in 2019, for Social Security insurance. It will also include 1.45 percent of all taxable wages for Medicare tax.

    As the employer, you are responsible for making an additional payment to the IRS equal to all Medicare and Social Security taxes withheld. Also, beginning in 2015, an employer must withhold Additional Medicare Tax from wages paid in excess of $200,000 during the year in addition to any other taxes withheld.

    Form 941 filing deadlines

    Since you must file a separate form for each quarter, the IRS imposes four filing deadlines that you must adhere to. The deadlines are April 30, July 31, Oct. 31 and Jan. 31 of each year. Just remember that the filing deadline always falls on the last day of the month following the end of the quarter. This gives you one month to prepare the form before submitting it to the IRS.

    What Do Form 941 Entries Include:

    • Number of employees
    • Total payroll for the reporting period
    • Taxes withheld from employees paychecks during the period
    • Total Social Security and Medicare wages
    • Calculation of taxable Social Security and Medicare wages for the period
    • Any adjustments made for tips, group life insurance, and sick days

    Most importantly, Form 941 calculates the total tax liability and the total deposits made during the previous quarter. The difference between the total taxes due and the total deposits already made is the amount still owed.

    Avoiding penalties

    Failure to timely file a Form 941 may result in a penalty of 5 percent of the tax due with that return for each month or part of a month the return is late. The penalty caps out at 25 percent. A separate penalty applies for making tax payments late or paying less than you owe. The IRS will charge you 2 to 15 percent of your underpayment, depending on how many days you are late paying the correct amount.

    As you might have guessed, 941 payroll tax penalties for not filing on a timely basis and for not making the payments due can be severe.

    • Failing to File. If you file late, your company can be penalized by the IRS. The fines start at 5% of the tax due, but can escalate to 25%.
    • Failing to Pay. You can also be penalized for late payments, at a rate of .05% per month, but this fine can also increase to 25% of the tax owed.

    At the end of the year, the total amount you report on the four Form 941s must equal the total of all amounts you report on the W-2 forms you distribute to employees as well as the Form W-3 you send to the government. If something doesn’t add up, you will likely hear from the IRS.

    Preparation for your 941 Form 2019-2020

    • You can hire a payroll service or have a qualified employee handle the filing and payments. There are a number of good software programs that can streamline the process.
    • In terms of the actual payments, some companies use separate accounts to ensure there’s enough cash on hand to meet the obligation on the date due.
    • Ideally, after you have been through the process a few times, the 941 filing and payment should be a normal part of your company’s financial operations.

    Form 941 Schedule

    You’re required to file a separate Form 941 for each quarter (first quarter – January through March, second quarter – April through June, the third quarter – July through September, fourth quarter – October through December). Form 941 is generally due by the last day of the month following the end of the quarter. For example, you’re required to file Form 941 by April 30 for wages you pay during the first quarter, January through March.

    How to Submit Form 941

    Form 941 may be submitted electronically using Federal E-file. You can E-file Form 941 and pay any balance due electronically by using tax preparation software or by consulting with a tax professional.

    Form 944

    Some employers with small payrolls, including government employers, may file an annual return, Form 944 (PDF) instead of Form 941 (PDF) each quarter, if you are eligible and properly so indicated on your Form SS-4, Application for an Employer Identification Number (PDF). Form 944 is designed for employers with an annual employment tax liability of $1,000 or less. Form 944 generally is due on January 31 of the following year. The purpose of Form 944 is to reduce burden on small employers by allowing them to file one return per year, and in most cases pay the employment tax with the return.

    Employers who may be eligible to file Form 944 because their estimated annual employment tax liability is $1,000 or less and who want to file this form, but didn’t indicate this on the Form SS-4, have to contact the IRS to request to file Form 944. Employers aren’t permitted to file Form 944 unless they’re notified by the IRS to do so. Employers required to file Form 944, who want to file Forms 941 instead, must notify the IRS to request to file quarterly Forms 941 and receive approval to do so. See the Form 944 Instructions (PDF) for more information.

    IRS Form 1099 Rules

    Form 1099-MISC is required if:

    File Form 1099-MISC, Miscellaneous Income, for each person in the course of your business to whom you have paid the following during the year:

    • At least $10 in royalties (see the instructions for box 2) or broker payments in lieu of dividends or tax-exempt interest (see the instructions for box 8).
    • At least $600 in:
      • Rents (box 1);
      • Prizes and awards (box 3);
      • Other income payments (box 3);
      • Generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3);
      • Any fishing boat proceeds (box 5);
      • Medical and health care payments (box 6);
      • Crop insurance proceeds (box 9);
      • Payments to an attorney (box 10) (see Payments to attorneys, later);
      • Section 409A deferrals (box 12); or
      • Nonqualified deferred compensation (box 14).

    You must also file Form 1099-MISC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.

    Be sure to report each payment in the proper box because the IRS uses this information to determine whether the recipient has properly reported the payment.

    • Trade or business reporting only: Report on Form 1099-MISC only when payments are made in the course of your trade or business. Personal payments are not reportable. You are engaged in a trade or business if you operate for gain or profit. However, nonprofit organizations are considered to be engaged in a trade or business and are subject to these reporting requirements. Other organizations subject to these reporting requirements include trusts of qualified pension or profit-sharing plans of employers, certain organizations exempt from tax under section 501(c) or (d), farmers’ cooperatives that are exempt from tax under section 521, and widely held fixed investment trusts. Payments by federal, state, or local government agencies are also reportable.

    Payments for which a Form 1099-MISC is not required include all of the following:

    • Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation). However, see Reportable payments to corporations, later.
    • Payments for merchandise, telegrams, telephone, freight, storage, and similar items.
    • Payments of rent to real estate agents or property managers. However, the real estate agent or property manager must use Form 1099-MISC to report the rent paid over to the property owner. See Regulations sections 1.6041-3(d), 1.6041-1(e)(5), Example 5, and the instructions for box 1.
    • Wages paid to employees (report on Form W-2, Wage and Tax Statement).
    • Military differential wage payments made to employees while they are on active duty in the Armed Forces or other uniformed services (report on Form W-2).
    • Business travel allowances paid to employees (may be reportable on Form W-2).
    • Cost of current life insurance protection (report on Form W-2 or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.).
    • Payments to a tax-exempt organization including tax-exempt trusts (IRAs, HSAs, Archer MSAs, Coverdell ESAs, and ABLE (529A) accounts), the United States, a state, the District of Columbia, a U.S. possession, or a foreign government.
    • Payments made to or for homeowners from the HFA Hardest Hit Fund or similar state program (report on Form 1098-MA).
    • Compensation for injuries or sickness by the Department of Justice as a public safety officer disability or survivor’s benefit, or under a state program that provides benefits for surviving dependents of a public safety officer who has died as the direct and proximate result of a personal injury sustained in the line of duty.
    • Compensation for wrongful incarceration for any criminal offense for which there was a conviction under federal or state law. See section 139F, Certain amounts received by wrongfully incarcerated individuals.

    IRS TIN (Taxpayer Identification Numbers)

    A Taxpayer Identification Number (TIN) is an identification number used by the Internal Revenue Service (IRS) in the administration of tax laws. It is issued either by the Social Security Administration (SSA) or by the IRS. A Social Security number (SSN) is issued by the SSA whereas all other TINs are issued by the IRS.

    Taxpayer Identification Numbers:

    • Social Security Number “SSN”
    • Employer Identification Number “EIN”
    • Individual Taxpayer Identification Number “ITIN”
    • Taxpayer Identification Number for Pending U.S. Adoptions “ATIN”
    • Preparer Taxpayer Identification Number “PTIN”

    IRS TIN Matching

    This is a pre-filing service only offered to payers and/or their authorized agents who submit information returns. It enables validation of TIN and name combinations prior to submission of the information return.

    Apply for TIN Matching: To participate in TIN Matching as an authorized payer of income subject to backup withholding an application must be completed.

    Validate TIN Matching: Validate TIN and name combinations prior to submission of the information return.

    IRS Form 1099 Instructions

    The PATH Act, P.L. 114-113, Div. Q, sec. 201, accelerated the due date for filing Form 1099 that includes nonemployee compensation (NEC) from February 28 to January 31 and eliminated the automatic 30-day extension for forms that include NEC. Beginning with tax year 2020, use Form 1099-NEC to report nonemployee compensation.

    General instructions: In addition to these specific instructions, you should also use the 2020 General Instructions for Certain Information Returns. Those general instructions include information about the following topics.

    • Who must file.
    • When and where to file.
    • Electronic reporting.
    • Corrected and void returns.
    • Statements to recipients.
    • Taxpayer identification numbers (TINs).
    • Backup withholding.
    • Penalties.
    • The definitions of terms applicable for chapter 4 purposes that are referenced in these instructions.
    • Other general topics.

    IRS B Notice

    The “B” Backup Withholding Program, Treasury Regulation § 31.3406(d)-5 and IRC § 3406(a)(1)(b), provides notices to payers (a financial institution, business or person) who file certain information returns with incorrect Taxpayer Identification Numbers (TINs) to begin backup withholding.

    How do you become subject to “B” backup withholding?

    • You don’t provide the payer your TIN in the required manner.
    • The IRS notifies the payer that the TIN you provided is incorrect.


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