Just like individuals, businesses must file a tax return with the Internal Revenue Service (IRS). The IRS has designated Form 941 – Employer’s Quarterly Federal Tax Return for this purpose.
Use this form to report the amount of taxes you withheld from employees’ paychecks. You’ll also need to report and pay your portion of the payroll taxes.
Let’s discuss some important details about completing and filing this form.
Who Should File Form 941?
If these two things apply, employers should file the Employer’s Quarterly Federal Tax Return. Firstly, they have standard employees. Secondly, they pay Social Security and Medicare taxes, as well as unemployment insurance.
- Standard Employees
There are different pros and cons for each company when deciding whether to hire standard employees or independent contractors.
“Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done,” says the IRS.
“This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.”
On the other hand, independent contractors are free to determine everything about their process. Their only obligation is to produce the agreed-upon product in a timely manner.
Employers withhold taxes for standard employees, but not for independent contractors. Independent contractors have a wholly separate tax framework from standard employees.
For that reason, employers do not need to file Form 941 if they get all their services from independent contractors.
- Federal Income Tax and Federal Insurance Contributions Act (FICA) Taxes Withholdings
FICA taxes, also known as payroll taxes, are critical to our system. They fund social safety net programs for vulnerable members of our society. Therefore, tax laws empower the IRS to assess steep penalties on mishandled payroll taxes.
Employers withhold federal income tax and FICA taxes from each employee’s paycheck every pay period.
Employers withhold 6.2 percent of gross wages for the Social Security tax and 1.45 percent for Medicare tax. The employers then contribute the same as each employee does.
The employer holds these taxes in a dedicated bank account. Then, they withdraw and send them to the IRS with Form 941.
Federal Tax Deposit Schedule
Tax law doesn’t only determine how employers report their payroll taxes. It also determines when they must make their deposits to the U. S. Department of Treasury.
Your deposit schedule (monthly or semiweekly) coincides with the amount of payroll taxes you report on Form 941. It does not refer to how often you should pay your employees.
Nor does it refer to how often you must make deposits into your company’s personal dedicated payroll account. “Rather,” says the IRS, “the terms identify which set of deposit rules you must follow when an employment tax liability arises.”
For example, if an employer reports more than $50,000 in taxes, then they must deposit on the semiweekly schedule.
Form 941 Filing Deadlines
Individuals have an annual deadline to file their federal tax returns. The deadline is basically the same every year. It’s Tax Day, which is April 15th, give a few days depending on whether it falls on a non-business day. In comparison, employers have quarterly deadlines to file theirs.
An employer must file their federal tax return no later than the last day of the month following the end of the quarter. For example, an employer must file their first quarter tax return by April 30.
The first quarter consists of the months of January, February, and March. The following month is April. The last day of April is April 30.
The second quarter deadline is July 31. The third quarter deadline is October 31. Finally, the fourth quarter deadline is January 31 of the following year.
“You might be able to file an annual federal tax return on Form 944 instead of filing quarterly Forms 941 if you expect your FICA taxes and withheld federal income tax for the year to be $1,000 or less,” says Balance Money.
Failure to complete and file Form 941 on time generally results in a penalty. “There’s a late deposit penalty ranging from 2% to 15% depending on the length of time the deposit is late,” says the IRS.
If the IRS determines that the employer “willfully fails” to pay the employment taxes, then they can assess the Trust Fund Recovery Penalty (TFRP). Individual representatives for the employer are responsible for the TFRP.
The responsible individual(s) must pay a penalty that “is equal to the unpaid balance of the trust fund tax,” according to the IRS. That is a penalty of 100%!
Depositing Employment Taxes
The IRS offers a free payment service for payroll taxes. The Electronic Federal Tax Payment System (EFTPS) is easy and convenient for quarterly deposits. Although, it’s important to keep in mind that the IRS doesn’t forgive late payments due to a malfunctioning website.
There are other options for payment in the case that the website is unavailable. Instead of using the EFTPS website, call them. They generally take payment over the phone through an automated messaging system. The Treasury accepts payment by paper check, too. Just be sure to drop it in the mail in plenty of time to arrive by the deadline.
Additionally, your bank may offer a service, such as a wire or ACH Credit. Contacting a tax professional is especially helpful for those who don’t have time to spare on an unexpected roadblock like this. In fact, some tax professionals do not charge their clients the fees associated with filing Form 941.
Getting Help
Employers must file their quarterly tax returns and deposit their tax payments to avoid penalties and interest. This form calculates how much tax the business collected from employees. It also calculates how much the business owes for its portion.
These calculations can be complex and tax law is fluid, especially since we’ve been navigating the pandemic. We invite you to contact us for a free consultation. We’ll discuss what you need and how we can help. There’s no obligation to our firm.
You can reach us at 877.959.0975. Call us today. Sleep better tonight.
Resources
- Author Clinton F Wassor on November 30, and Professionally reviewed by Clinton F Wassor. “Your Complete Guide to Unpaid Payroll Taxes.” Tax Relief Professional, 30 Nov. 2022, https://taxreliefprofessional.com/unpaid-payroll-taxes.
- “Employment Taxes and the Trust Fund Recovery Penalty (TFRP).” Internal Revenue Service, https://www.irs.gov/businesses/small-businesses-self-employed/employment-taxes-and-the-trust-fund-recovery-penalty-tfrp.
- Murray, Jean. “How to Calculate FICA Taxes.” The Balance, The Balance, 14 Oct. 2022, https://www.thebalancemoney.com/how-do-i-calculate-the-amount-of-fica withholding -tax- -398709.
- Murray, Jean. “How to File IRS Form 941.” The Balance, The Balance, 4 Apr. 2021, https://www.thebalancemoney.com/how-and-when-to-file-form-941-for-payroll-taxes-398365.
- “Topic No. 757 Forms 941 and 944 – Deposit Requirements.” Internal Revenue Service, https://www.irs.gov/taxtopics/tc757#:~:text=You%27re%20required%20to%20deposit,instead%20of%20depositing%20the%20amounts.
- “Topic No. 758 Form 941 – Employer’s Quarterly Federal Tax Return and Form 944 – Employer’s Annual Federal Tax Return.” Internal Revenue Service, https://www.irs.gov/taxtopics/tc758#:~:text=Penalties%20%2D%20It%27s%20very%20important%20that,time%20the%20deposit%20is%20late.
- “Understanding the Relationship between FICA and Form 941.” Chamber of Commerce, 30 Dec. 2020, https://www.chamberofcommerce.org/relationship-between-fica-and-form-941.
Claudia Grant
