Considering the number of tax forms that exist, and the fact that most are named with numbers, it’s no surprise that tax forms are complicated. Navigating payroll taxes can be a complex effort of its own. IRS Form 941 is just one of many tax forms employers are required to file, so we’re breaking it down to try and simplify those efforts.
Employers use IRS Form 941 (Employer's Quarterly Federal Tax Return) to report income taxes, social security tax, and Medicare tax your business withheld from employees’ paychecks, and pay the employer’s portion of social security and Medicare tax.
Special rules apply to some employers. For example:
Employers who employ household workers such as butlers, maids, live-in nannies, etc. don’t usually file Form 941.
Employers who employ farm employees don’t file Form 941 for wages paid for agricultural labor.
Seasonal employers don’t have to file Form 941 for quarters in which they have no tax liability because they have paid no wages.
Form 941 is made up of five parts, plus a payment voucher.
At the very top of the form, employers have to fill in their business information. This includes the employer identification number (EIN), business name, trade name (any other name the business may go by), and the address. There’s also a box where you need to check which quarter the return is for.
Part 1 of the form contains fields that help calculate the amount employers must send to the government. Completing Part 1 includes reporting the following amounts:
Wages, tips and other compensation your employees have received
Federal income tax you withheld from employees’ wages, tips, and other compensation
Both the employer and employee share of social security and Medicare taxes
Additional Medicare tax withheld from employees
Current quarter’s tax adjustments to social security and Medicare taxes for fractions of cents, sick pay, tips, and group-term life insurance
Qualified small business payroll tax credit for increasing research activities
You may have to deposit the federal income taxes you withheld, and both the employer and employee social security taxes and Medicare taxes.
If your total taxes after adjustments and credits (line 12) are less than $2,500 for the current quarter or the prior quarter, and you didn't incur a $100,000 next-day deposit obligation during the current quarter, you don't have to make a deposit. To avoid a penalty, you will need to pay the amount in full with a timely filed Form 941 or you must deposit the amount timely. If you’re not sure your total tax liability for the current quarter will be less than $2,500 (and your liability for the prior quarter wasn't less than $2,500), the IRS recommends that you make deposits using the semiweekly or monthly rules so you won't be subject to failure-to-deposit penalties.
If your total taxes after adjustments and credits (line 12) are $2,500 or more for the current quarter and the prior quarter, you must make deposits according to your deposit schedule.
Unlike corporate quarterly taxes (which are only paid after the quarter is over) employee taxes have to be paid either semi-weekly or monthly. Part 2 of the Form 941 should be filled out based on when you have to pay. Your deposit schedule depends on the total tax liability you reported on Form 941 during the previous 4-quarter lookback period (July 1 of the second preceding calendar year through June 30 of the preceding calendar year). Note that if you filed Form 944 in either 2018 or 2019, your lookback period is the 2018 calendar year. Before the beginning of each calendar year, determine which type of deposit schedule you must use:
If you reported $50,000 or less in taxes during the lookback period, you’re a monthly schedule depositor.
If you reported more than $50,000 of taxes during the lookback period, you’re a semiweekly schedule depositor.
If you’re a monthly schedule depositor and accumulate a $100,000 tax liability on any day during the deposit period, you become a semiweekly schedule depositor on the next day and remain so for at least the rest of the calendar year and for the following calendar year.
There is always potential for human error when you’re filling out tax forms, particularly if it’s your first time filing business taxes. If you do make a mistake, you can use Form 941-X to correct both underreported and overreported taxes. As always, consult your tax advisor for guidance.
When it comes to filing payroll taxes, working with a PEO can be a big help for small businesses. Justworks PEO files Forms 941 under Justworks’ FEIN in the aggregate for all of our customers and remits applicable payroll taxes on behalf of our customers. We also file your W-2s, and 1099s for you, keep you updated as employment regulations change, and provide resources and support that help you stay compliant.
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