IRS Form 941 is one of the many IRS tax forms with which business owners need to be familiar. Form 941 needs to be filed regularly. As a result, setting up your accounting systems properly is important in order to make the reporting and filing process as seamless as possible. Take the time to understand what information is required on Form 941 and make filing this document part of business as usual.
[Read more: Working as an Independent Contractor? These Resources Will Help You Manage Your Taxes]
What is IRS Form 941?
IRS Form 941 — more commonly known as the Employer’s Quarterly Federal Tax Return — is the form your business uses to report income taxes and payroll taxes withheld from your employees’ wages. It also provides space to calculate and report Social Security and Medicare taxes.
Who needs to file Form 941?
Most businesses are required to file Form 941 quarterly, with a few exceptions. Seasonal businesses only need to file for the quarters in which they are operating. Businesses that hire farm workers or household employees, such as a maid, also don’t need to file Form 941 (but do need to file Schedule H from Form 1040). And if your business pays less than $1,000 in employment tax in a given tax year, you’ll need to file Form 944 instead.
[Read more: A Complete Guide to Filing Your Business Taxes]
What do you need to report on Form 941?
Businesses need to fill out Form 941 to report federal withholdings from employees, including:
- Wages paid to employees.
- All federal income tax withholdings.
- All reported employee tips.
- Employer and employee shares of Social Security and Medicare taxes, along with any additional Medicare tax withholdings.
- Any quarterly adjustments to Social Security or Medicare taxes for things like sick pay or tips.
- For tax years prior to January 1, 2023: any payroll tax credit you claimed for increasing research activities.
Once you account for these items, you’ll end up with a total amount of money you will need to pay to cover your payroll tax responsibilities for the quarter.
How to file Form 941
Follow these steps to complete IRS Form 941 and ensure legal compliance:
Fill in your business information
At the top of the form, write in your employer identification number (EIN), name, and business address. Lines 1–3 will ask for the number of employees paid, the total amount of compensation, and the amount of federal income tax withheld. If your compensation is not subject to Social Security and Medicare tax, you can check the box in Line 4; this does not apply to most businesses.
Complete Part 1
Part 1 contains approximately 15 lines, where you’ll detail paid wages and withheld taxes to determine your tax liability or overpayment:
- Calculate the information in Line 5. In this section, you’ll calculate the amount of taxable Social Security and Medicare wages, breaking down wages by type (sick leave and family leave wages, Social Security tips, Medicare wages and tips, and wages/tips subject to additional Medicare tax withholding). Once you have this, you can determine your total tax liability for the quarter.
- Complete Lines 7–10. Include adjustments your business needs to report — including sick pay, tips, and group term life insurance — and calculate the total post-adjustment.
- If applicable: Complete Lines 11 and 12. If you claimed payroll tax credits for increasing research activities, include the amount on Line 11, attaching IRS Form 8974 to your Form 941. Then, fill in Line 12, which is the total taxes after any adjustments, and Line 11 credits.
- Fill in Lines 13–15. On Line 13 and its subitems, tally your total deposits and any refundable advances. If Line 12 is greater than Line 13i, the form will indicate a balance due. If Line 13i is greater than Line 12, fill in the difference on Line 15; this overpayment can be applied as a credit or sent as a refund via check.
If you fail to file your Form 941, the IRS charges a penalty of 5% of the total tax amount due.
Complete Parts 2–5
Part 2 will ask you about your deposit schedule and tax liability; semiweekly depositors (with over $50,000 in tax liability for the quarter) are required to complete and attach Form 941 Schedule B.
Part 3 will ask if your business closed, if you are a seasonal employer, or if you stopped paying wages for any reason. In Part 4, you can authorize a third-party designee to speak with the IRS regarding your form.
After reviewing your form for accuracy (with a second eye from a tax professional, if you have one), sign and date Part 5. You can then submit your form to the IRS and pay any balance you may owe.
Where to submit Form 941
There are two options for filing Form 941: by mail or electronically. The most convenient option is to use the federal e-File system. This can be accessed through many common small business tax software providers, such as TurboTax, H&R Block, or TaxSlayer. If you work with an accountant or a CPA, they will likely have access to an e-file tool and can send the form and payment on your behalf.
Alternatively, you can mail Form 941 directly to the IRS. The mailing address will depend on a few factors, including the state your business operates in, which quarter you are filing for, and whether payment has been included in your return. The IRS provides a list of addresses according to your state here.
If you do need to send payment, mail a check made out to the U.S. Treasury with your form, or pay online via the Electronic Federal Tax Payment System.
[Read more: 5 Types of Tax Forms Every Small Business Owner Should Know]
When is Form 941 due?
For businesses required to submit Form 941 quarterly, file each quarter’s form with the IRS one month after the last day of the reporting period to avoid penalties. This means the due dates are:
- April 30, for the first quarter covering January 1 to March 31.
- July 31, for the second quarter covering April 1 to June 30.
- October 31, for the third quarter covering July 1 to September 30.
- January 31, for the fourth quarter covering October 1 to December 31 of the previous year.
If the due date falls on a weekend or legal holiday, you can file it on the next available business day. Additionally, if your employment tax deposits are paid on time and in full for the quarter, you will have an extra 10 business days to file from the due date.
Penalties for failing to file or pay taxes on Form 941
If you fail to file your Form 941, the IRS charges a penalty of 5% of the total tax amount due. Your business will continue to be charged an additional 5% every month the return has not been submitted for up to five months.
On top of facing penalties for failing to file your tax return, you will also be charged an initial penalty of 0.5% of the unpaid tax amount if you also did not pay the taxes owed. After receiving a notice of intent to levy from the IRS, the penalty will increase to 1% after ten days. This penalty will continue to increase every month until the payment is made.
If you receive a failure to deposit penalty notice, you should pay as soon as possible to avoid ongoing fees. If this is a first-time penalty or you have a reasonable cause (such as a natural disaster or death in the family), you can also apply for penalty abatement with support from a tax professional. Note that being unaware of your tax obligations is not considered reasonable cause.
This article was originally written by Emily Heaslip.
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