IRS Form 941 is the Employer’s Quarterly Federal Tax Return. It’s filed four times per year, and it’s where you report all federal income taxes, Social Security tax, and Medicare tax withheld from employees’ paychecks and portions of these taxes paid by you, the employer. This guide will walk you through understanding the form, when and if you need to file it, and how to handle employee tax payments to the Internal Revenue Service (IRS).
Understanding Form 941
If you’re a small business owner and have employees, you are responsible for withholding taxes from their paychecks and sending those taxes to the IRS. In addition, you are also responsible for paying the employer’s portion of Social Security and Medicare tax for each employee.
IRS Form 941 pertains only to federal taxes and not state taxes, which may be handled differently for each state. There are three taxes recorded on Form 941:
- Federal income tax: When your employees earn wages from you, they must pay taxes on those wages. These taxes should be withheld from their paychecks by you and sent to the IRS on their behalf. The amount of taxes withheld from a particular employee will depend on the information they provide you on Form W-4 they fill out when you hire them and the amount of wages you pay them.
- Social Security tax: The employee share of Social Security taxes is 6.2% of their wages. As the employer, you must withhold this from their wages in addition to matching the amount and sending payment to the IRS. In other words, you essentially pay a 12.4% Social Security tax on your employee’s wages, but half of that amount is taken from their paycheck, and you provide the other half.
- Medicare tax: This tax is also split between the employer and employee, each paying half of 2.9%. The employee’s portion is withheld from their paycheck and sent with the employer’s portion to the IRS. If an employee earns more than $200,000 per year, the employer must withhold an additional 0.9% of their wages for additional Medicare tax.
The form will ask for your employer identification number (EIN), address, and other information and require you to list the number of employees and the total wages, tips, and other compensation you paid to employees in the previous quarter. Following that, you will record the total federal income tax you withheld, enter Medicare wages and Social Security wages, and follow the instructions to compute the total amounts of Social Security and Medicare taxes owed.
Be sure to read the instructions that go with the form carefully to see if there are any payroll tax credits or adjustments for things like research activities or group-term life insurance you might qualify for. Near the end of part one of the form, you will reconcile payments you have made with the tax due and determine if you need to pay additional tax or are owed a refund.
You will also need to supply a breakdown of your tax liability monthly or semiweekly, depending on how often you were required to make payments. These broken-down numbers should add up to the total tax liability for the quarter.
How Often to Submit Tax Payments
How often you need to submit tax payments is not the same as how often you should be filing Form 941. The form is filed quarterly, but taxes are usually paid more frequently than that if you want to avoid penalties.
In general, if you pay $50,000 or less in a 12-month "lookback" period, you need to make monthly payments, due by the 15th of each month for the prior month’s accumulated taxes. If it is more, you must make semiweekly payments, which are due on Wednesday and Friday each week for taxes accumulated during the previous Wednesday through Friday or Saturday through Tuesday, respectively. If you accumulate more than $100,000 in taxes during a payment period, payment must be made by the following business day.
If the total amount of all taxes for all employees is less than $2,500 per quarter, payment can be made when you file Form 941. If this is the first quarter you have owed more than $2,500, you will not be assessed late penalties when you pay with your return unless you accumulate $100,000 in taxes before the end of the quarter.
Payments are made electronically through the Electronic Federal Tax Payment System (EFTPS), which the IRS offers as a free service to all employers. You can also make payments toward your owed tax by check made out to the United States Treasury if you submit payment with your return and owe less than $2,500 .
Who Needs to File Form 941?
If you have employees to whom you pay wages that are subject to federal income tax withholding, Social Security tax, or Medicare, you will need to file Form 941. However, this form isn’t used to report backup withholding or income tax withheld from sources other than standard payrolls, such as pensions or annuities.
Note that you are not responsible for withholding employment taxes or paying Social Security and Medicare if you hire independent contractors. You are not considered the employer of an independent contractor.
Form 941 vs. Form 945
Sometimes, people confuse whether they should use Form 941 or Form 945 since they are both returns for withheld taxes. However, Form 945 is distinctly different. First, it is used only for reporting withheld federal income tax from one of the following sources:
- Pensions and annuities
- Military retirement
- Gambling winnings
- Indian gaming profits
- Voluntary withholding on certain government payments
- Backup withholding
It’s not used for payroll tax withholding. Furthermore, it doesn’t handle any Social Security or Medicare taxes since neither is owed on the types of income listed above.
Form 941 Best Practices
It’s generally a good idea, especially if you don’t have much experience with handling taxes, to hire an accountant or a tax professional to set up your tax deposits and complete your filings on your behalf. This can help you avoid costly errors and take the stress of interpreting complex tax publications off your shoulders. However, all of the information you need to stay compliant with taxes is available on the IRS website for those who need it.
Note that when you register for an EIN with the IRS, you should be set up with an associated EFTPS account. This makes the paying of taxes straightforward and easy. Be sure to keep accurate and consistent payroll records so that computing the taxable wages is simple, and you can be assured that your payments are for the right amount.
Always pay what you owe and pay on time. Otherwise, you will owe additional penalties, ranging from 5% to 25% of the amount due.
When Does Form 941 Need to Be Filed With the IRS?
Keep in mind that Form 941 is a quarterly return, which means it must be filed four times per year. The due dates for each quarter’s return are as follows:
- April 30, for the first quarter including January, February, and March
- July 31, for the second quarter including April, May, and June
- Oct. 31, for the third quarter including July, August, and September
- Jan. 31, for the fourth quarter including October, November, and December
But don’t forget that payments must be made monthly or semiweekly, as described earlier in this article, unless you owe less than $2,500 each quarter.
How to File Form 941 With the IRS
Your quarterly Form 941 may be filed electronically or via paper. To e-file the form, you will need to purchase IRS-approved software or hire a tax professional who is an authorized IRS e-filer. Despite the additional expense, e-file is preferred by many businesses for its convenience.
To mail Form 941, complete, print, and sign the Form 941 found on the IRS.gov website. If you make tax payments semiweekly, you will additionally need to fill out and attach Schedule B, and if you are sending payment, you will need to include Form 941-V Payment Voucher. The completed return should be mailed to the IRS location determined by your state of residence or principal place of business.
Note that if you need to submit payment, it does not need to be mailed in with the paper return but can be separately submitted electronically through EFTPS.
Manage Your Tax Forms and Accounting With Skynova
Visit Skynova for tips and resources on how to maximize tax deductions and manage taxes throughout the year. Check out Skynova’s accounting software, which can help you get started in seconds by keeping track of income, expenses, and taxes. Additional software products and templates are also available to help your small business stay on track.