Form 941-Updated for Tax Year 2015
Owning a business and being your own boss has many advantages but dealing with the large amount of tax regulations and requirements is certainly not one of them. If you are running a business and your operation has employees then you are required by the IRS to file Form 941 every quarter along with your Employer Quarterly Tax Return.
According to IRS rules, one of the primary responsibilities of an employer is to withhold income taxes and any other applicable payroll tax amounts from your employee payroll checks. You are then also responsible for submitting these payments to the IRS in a timely fashion as stipulated within the IRS regulations.
Form 941 is a reporting record of the amounts and times of taxes withheld from employee payroll checks and submitted to the IRS. Using a payroll service does not alleviate the responsibility of an employer to ultimately ensure this process takes place and Form 941 is filed every quarter on time.
Are All Employers Required to File Form 941?
Anyone that operates a business and has employees that receive wages is required to file Form 941 quarterly. In fact, you must continue filing Form 941 even if you do not have any employees for a given quarter. There are only a few exceptions to this rule which include seasonal employers who may have multiple quarters without any employees, some employers that employ household staff and employers that maintain farm employees.
Correctly Filing Form 941
It is important to ensure that Form 941 is filed properly as any errors or mistakes may result in having to refile the form and in some cases cause late penalties. The total amount of wages that an employer has paid during a quarter, as well as the amount of total payroll taxes that were withheld in the quarter, must be reported. In addition, the total number of employees is required and do not forget to include the amount of wages in the form of taxable tips which employees have reported to you.
Calculating the Amount Due to the IRS
On top of the income taxes withheld from employee payroll checks, an employer must also submit payment that includes 6.2% of every employee’s total wages for the quarter up to a maximum income of $118,500 (Updated for 2015). The 6.2% is for Social Security Insurance. Additionally, you must include 1.45% of total wages earned for the applicable Medicare taxes.
Starting in 2015, employers are now also obligated to submit payment and withhold the Additional Medicare Tax which is based upon all wages earned that are above $200,000 at any point during the tax year.
Deadline for Filing Form 941
Because employers are required to file Form 941 quarterly, there are four deadlines that must be met. The deadlines for filing the appropriate form and reporting accurate information are as follows:
April 30 of the current tax year
July 31 of the current tax year
October 31 of the current tax year
January 31 of the current year reporting information from the previous tax year
Penalties and Fines
Ensuring you file Form 941 on a timely basis is vital to avoiding penalties and/or fines. If an employer does not file the required form and information by the required deadlines then they are subject to a minimum five percent penalty of the total amount due for every month or partial month the form is past due. Additionally, the IRS has the right to penalize employers between two and fifteen percent for any amount of underpayment that occurs. The exact amount charged is largely at the discretion of the IRS and is determined on a case by case basis.
At the conclusion of the tax year, it is imperative to ensure all the amounts that were reported throughout the year on Form 941 equal the amounts reported on all employee W-2s and the W-3 submitted to the IRS. The IRS carefully checks these figures to ensure consistency and if there appear to be any variances then they are very likely to look much deeper into the situation for answers.
Additionally, it is important to keep clear records of all employee payroll payments, taxes withheld, Form 941s filed, employee W-2s and all W-3s. Should the IRS question any of your calculations or filings then you will be expected to provide documentation that clearly supports what you have reported. Any discrepancies found or a lack of additional documentation may trigger the IRS to conduct a more detailed audit which means they will want to look at all of your company’s financial records. An audit can be both time consuming and expensive for employers so it is best to follow all regulation exactly from the start to ensure you avoid penalties and audits.
Small Business Accounting:
Step by Step: Filling Out Form 941
Each quarter (15th of January, April, June and September) employers must file Form 941 with the IRS outlining the withheld income taxes including all tips, wages, sick pays, unemployment benefits, etc plus social security and Medicare taxes. This article will help you in filling out the form 941, which many people have compared to learning a foreign language. Agricultural employers need to file Form 943 to report withheld income taxes, social security and Medicare taxes. Keep in mind you do not need to file multiple Form 941s for multiple divisions and locations. Just file one form. Following are step-by-step instructions for filing out form 941:
- On top of the form there is a small box for seasonal workers. Check this if only hire employees for a season like summer or winter. This way the IRS knows not to expect four Form 941s from you.
- On line 1 you must list the number of employees you have
- On line 2 you put the total amount of wages and tips that you have paid to your employees. This doesnt mean the amount of withheld income taxes, social security, and Medicare taxes. This also includes any kind of other compensations that you have given to your employees including money for lunches, parking spaces, massages, and money paid to day care centers and dog kennels. This also includes any sick pay that you or your insurance courier paid to your employees.
- On line 3 you put all the income tax that you have withheld from your employees. This includes tax collected on the wages that you have paid them, on the tips, money for lunches, parking spaces, massages, money paid to day care centers and dog kennels, etc.
- On line 4 is where you come clean if you have made mistakes on other Form 941s for the preceding quarters. For any adjustments that you need to make for the withheld income taxes, this is where you do it. Only report adjustments for the current calendar year, meaning for the quarters in this year not the previous one. Dont forget to take this into account on line 17, because your tax liability has either increased or decreased.
- On line 5 you put either the total amount of line 4 and 3, if you had additional withheld income tax to report, or minus line 4 and 3, if you had reported extra-withheld income tax previously and needed to reduce the amount now. Whatever the total, report it here.
- Line 6 has four parts to it:
- On line 6a, all wages that are subject to the social security taxes are reported here. This doesnt include the tips. Examples are wages paid to your employees, sick pay, money for lunches, parking spaces, massages, and money paid to day care centers and dog kennels. The limit for the year 2000 is $76,200. Anything beyond this is not taxable.
- On line 6b, you put the tax that you should compute using a calculator. To do this, multiply the number from line 6a by .124. For example, if the wages total $10,269 and you multiply that by .124 (12.4%), you get $127.33. Thats what goes here.
- On line 6c, you put the tips that your employees have reported for this quarter that are subject to social security taxes. These are the tips that are reported to you by your employees. Tips that you have allocated to them need to be reported separately, not here.
- On line 6d, you calculate the tips made by your employees and reported to you by multiplying by .124 (12.4%). The amount gets entered here. Always try to double-check your work. Small mistakes can sometimes ring the bell at the IRS.
- On line 7a, you take the amounts from line 6a and 6c and add them up. The total goes here.
- On line 7b, you take the number you got for line 7a and multiply that by .029 (2.9%). The amount you get is entered here.
- On line 8, you add all the amounts from line 6b, 6d, and 7b. You enter the total here. If the wages and tips were not subject to the social security taxes and/or Medicare taxes then check the small box placed there.
- Line 9 gets a little complicated. Even though its very similar to line 4, here you are trying to adjust the social security and Medicare taxes for this quarter and the previous ones. The difference here is that you can also adjust the taxes for prior years. Adjustments are for the uncollected employee share of social security taxes and Medicare taxes on tips, the employee share of social security and Medicare taxes on group-term life insurance premiums paid for former employees, the employee share of social security and Medicare taxes withheld by a third-party sick pay payer, Fractions of cents involved. Sick pay adjustments and fraction of cents go into their allocated spaces. All the other adjustments go into the other. This includes all prior period adjustments for prior quarters and years. Once again you have to take this into account for line 17 or schedule B. You need to explain all prior period adjustments that you report on line 9 of Form 941 on Form 941c. This is basically a statement supporting line 9. According to the IRS, you also need to file Form W-2c (Corrected Wage and Tax Statement) and Form W-3c, (Transmittal of Corrected Wage and Tax Statement).
- On line 10, you add line 8 and 9 if the number in line 9 is a positive one meaning you have increased your tax liability or you subtract line 8 and 9 if number in line 9 is negative.
- Line 11 is simple math where you add line 5 and line 10 and record the number.
- On line 12, you enter the advance earned income credit amount provided to your employees. Employees only become eligible for this when they correctly fill out W-5 and give it you. If this amount exceeds line 11 then you can either claim a refund for this quarter or let it rollover to the next. But you do need to provide the IRS with a written statement explaining the circumstances under which the amount exceeded the amount in line 11.
- Line 13 is the amount that you get after you subtract line 12 from line 11. If this is over $1000, then it should equal line 17 on schedule B.
- Line 14 is the amount that includes all the deposits that you have made in this quarter plus overpayment applied from prior quarters.
- On line 15, you need to subtract line 14 from line 13. If you get a zero it means line 13 was more than a $1000 and you made all the deposits on time for your taxes. You would only have a balance due here if their tax liability for this quarter was under $1000 on line 13. If the balance due is one dollar then you dont owe IRS anything. Also if you pay your taxes with this form, be ready to get hit with penalties. Mostly late fees and fines.
- Line 16 is where you have to decide if you want your overpayment (whatever is left over from after you subtract line 14 from line 13) to be refunded or rolled over to the next quarter. Also enter this overpayment on the appropriate line and dont forget to check a box.
- Line 17 shouldnt be filled if the amount on line 13 is less than $1000. If its over then the other requirement is that you have to be a monthly schedule depositor for the quarter. If you are a semiweekly schedule depositor then report your tax liability on schedule B. The taxes reported for a look back period (four consecutive quarters ending on June 30th of the previous year) should be under or equal to $50,000 for a monthly schedule depositor. Also you should never enter a negative amount in any of the four columns, instead enter a zero. This occurs sometimes from correcting an over reported liability in a prior period. If excess negative adjustments are carried forward to the next quarter dont show them on line 4 and 9.
Well you are done and good luck with sending this in and remember to use the preaddressed form for this. Always go over your calculations and dont forget to sign the form!