September 20, 2020
IRS Form 941, Employer’s Payroll Tax Return
IRS Form 941, Employer’s Payroll Tax Return
Filing Instructions
If you are an employer with employees, you will need to file a Form 941. This quarterly tax return is the IRS’s way of keeping track of employees and their wages as the taxes withheld from employees are credited to them in payment of their tax liabilities.
As an employer, you are responsible for your share of social security and Medicare taxes, which is not withheld from an employee. Failure to do so has severe consequences, such as penalties, amounts assessed to you personally as a penalty, and depending on the amount it could lead to jail time.
In this article we’ll go through the Form 941. As always, if there is ever any doubt, it’s best to contact a tax or payroll professional to ensure your forms are correct and that your Federal Tax Deposits are correct and made timely. There are many companies out there who specialize in payroll and it’s always a good idea to ask questions versus attempting to handle this on your own.
About Form 941?
There are a few different wage-related taxes you need to report on Form 941:
Withholding taxes: A business with employees is required to withhold certain taxes from their employee’s paycheck. These taxes are Federal Income, Medicare and Social Security, also known as FICA. The FICA taxes, Medicare and Social Security, are paid a total percentage of 7.65%, which is divided into 6.2% for Social Security and 1.45% for Medicare.
As an employer, you are required to file this form if any of the following apply:
- You pay wages
- Employees report tips
- Withheld Federal Income Tax
- Both the employer and employee share of the social security and Medicare taxes.
- If you have any employees who earn more than $200,000 per year, additional Medicare taxes need to be withheld from employees.
Note: If your payroll tax liability is less than $1,000 annually, you will file Form 944 as you will only pay these taxes once per year versus every quarter.
Form 941 Filing Deadlines
As this return is due quarterly, the Form 941 is due the month after the quarter ends on the last day of that month, such as:
- April 30 (1st Quarter months of January, February and March)
- July 31 (2nd Quarter months of April, May and June)
- October 31 (3rd Quarter months of July, August and September)
- January 31 (4th Quarter months of October, November, December)
Like any return, if the due date falls on a weekend or Federal holiday, the return is due the next business day. For example, in year 2020, October 31 is a Saturday. Therefore, the 3rd Quarter Form 941 will be due on Monday, November 2.
Form 941 Instructions
Taking the time to complete the Form 941 correctly is straight forward if you have the information available to complete in its entirety. You will need to know the following:
- The number of people you employ
- Employee ID numbers
- Payroll records
- Forms W-2 and W-3
- The total amount you owe the IRS, if Federal Tax Deposits were not previously made.
Form 941 Calculations
Income Tax Withholding
[Employee’s Tax Rate] x [total wages paid for the quarter]
How to determine your employee’s:
- Tax rate: Determined by their filing status and annual earnings. Review Form W-4 submitted by employee.
- Total wages paid for the quarter: Divide your employee’s annual wages by 4. We are filing the quarterly return, so using the quarterly method versus how an employee is paid, such as monthly, semimonthly, biweekly, weekly or daily.
The best system to use for this calculation is the IRS Wage Bracket Method Table, which can be found here.
Social Security Tax
[12.4% Social Security Tax Rate] x [number of employees] x [wages up to $132,900 per employee]
Remember, both employees and employers contribute 6.2% toward Social Security tax; therefore 12.4%.
Social Security tax has a cap and therefore only applies to the first $132,900 of an employee’s wages.
Medicare Tax
[2.9% Medicare Tax Rate] x [total taxable wages]
Note: If you have any employees who earn more than $200,000 per year, additional Medicare taxes need to be withheld from the employee, but not from the employer. This additional amount is 0.9%.
Remember, both employees and employers contribute 1.45% toward Medicare tax; therefore, 2.9%.
Employer Responsibilities
As an employer, you are responsible for all things payroll, even after the employees receive their checks. It also includes paying the employer’s share of payroll taxes, as discussed above, making timely Federal Tax Deposits, filing quarterly Form 941 and filing W-3’s and W-2’s and Form 940 yearly.
All of this on top of running a business can be horribly overwhelming. Many companies, big and small, have contracted with payroll companies for assistance in filing these forms and ensuring the taxes are paid, not only in the correct amount, but timely too.
As it’s the employer’s responsibility to ensure payroll is correct and filed on time, any errors can cause a disruption in the system and bring an audit or a 4180 Interview. If there is a Revenue Officer assigned as an employer failed to make payments, there is big trouble ahead and you seriously need to consider speaking with a tax professional or tax resolution specialist!
Penalties & Deadlines
The only sure way to avoid penalties and fines set by the IRS is to ensure you are filing your Form 941 timely, meaning following the schedule noted above. In addition, you must ensure you are making Federal Tax Deposits with every payroll.
If you file the Form 941 late, each month, or part of the month, the return remains unfiled the business will be assessed a Failure to File penalty, which is 5% of the unpaid tax due on the return. This penalty maxes out at 25% of the tax due. In addition, for each month, or part of the month, the tax due remains unpaid, the business will be assessed a Failure to Pay penalty of 0.5%.
The reason many business fail is because of payroll issues. Businesses are short of funds in one department and to keep the company going, they “borrow” from the payroll fund. Unfortunately, when that begins to happen, the downhill slide isn’t very far from hitting rock bottom. Not only are you stealing from your employees by not submitting the taxes you withheld from their paychecks, but you are also shorting them the funds you owe for Social Security and Medicare. If the business continues this path, the IRS sees this as pyramiding as the debt continues to mount without any resolution. In the end, the business case will be assigned to an IRS Agent, Revenue Officer, who will begin a 4180 Interview holding certain parties accountable for failure to submit payroll and will assess those individuals personally.
If payroll overwhelms you or worries you, it should! The IRS takes payroll very seriously and it should not be the last thing a business thinks about but should be the first thing a business is sure to handle. As suggested many times throughout this article, it’s best to contact a payroll professional to handle this portion of your business. The cost is absolutely worth it as the penalties alone could wreak havoc on a budget!
Can Form 941 Be Filed Electronically?
Yes, Form 941 can and should be filed electronically. You should file online via the IRS website, and you must use the EFTPS.gov service to transfer funds electronically.
Where to Mail Form 941
Upon completion of the Form 941, signed, dated and Title including a check written out to the “United States Treasury,” be sure to include your EIN on the payment. There are different address for which to mail the Form 941 depending on which state the business is located:
- If you are not submitting a payment:
Department of the Treasury
Internal Revenue Service, Kansas City, MO 64999-005, or
Department of the Treasury
Internal Revenue Service, Ogden, UT 84201-0005
If you are submitting a payment:
Internal Revenue Service
PO Box 806532
Cincinnati, OH 45280-6532, or
Internal Revenue Service
PO Box 932100
Louisville, KY 40293-2100
If you mail the return to the incorrect address, the IRS will transfer that return to the correct processing office, which could cause a delay in processing due to the transfer. So, be sure to check the instructions for Form 941 to ensure you are mailing to the correct address to avoid any delays.
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