If you have any employees, including yourself, you have various employment tax obligations. These include withholding income taxes and Social Security and Medicare (FICA) taxes from employees’ paychecks and paying the employer share of FICA. Except for very small employers, employment taxes must be deposited electronically according to a schedule (usually monthly or semiweekly). These tax payments are reported to the IRS on a quarterly basis on Form 941, Employer’s Quarterly Federal Tax Return.
Form 941 is a two-page form consisting of five parts:
- Employer information. The top of page one of the form is used to provide the employer’s name (including a trade name if not the name of the employer), address and employer identification number (EIN). Also, the employer must indicate the quarter for which the form is being filed: First quarter (January, February and March), second quarter (April, May and June), third quarter (July, August and September) and fourth quarter (October, November and December).
- Part 1. This is the heart of the form because it shows the number of employees, compensation paid and taxes owed. A greater description of this is below. This part shows whether the employer owes taxes (balance due) or has overpaid employment taxes. An overpayment can be applied toward the next quarter or received as a refund (the choice is indicated in this part of the form).
- Part 2. This part, which is on the top of page 2, explains the tax deposit schedule for employment taxes. The deposit schedule for most employers is either monthly (a breakdown of tax liability by month is entered here) or semiweekly. (There is a next-day deposit requirement for taxes exceeding $100,000; taxes of less than $2,500 can be paid with the form and need not be deposited.) Employers depositing taxes semiweekly explain their tax liability for their deposits on Schedule B of Form 941.
- Part 3. This part is used to answer two questions about the employer’s business: Whether it has closed or stopped paying wages (and the date this happened) and whether there are seasonal employees (so that a quarterly form is not required for every quarter).
- Part 4. If the employer wants the IRS to speak with a third party, such as a CPA, this part is used to enter the phone number and a self-selected five-digit personal identification number of the third party (designee).
- Part 5. This part is for the signature of the employer. It also includes the date of signing and a daytime phone number.
If a paid preparer completed the form, the preparer’s information is included at the end of the form, including:
- firm name (or the preparer’s name if self-employed without a firm name)
- Preparer Tax Identification Number (PTIN)
- date of signing
- Employer Identification Number (EIN) of the preparer or the firm
- phone number
If deposits do not match the amount of employment taxes owed for the quarter, a payment can accompany the form. When making a payment with Form 941, include Form 941-V, Payment Voucher, which helps the IRS process the payment correctly.
Taxes Reported on the Form
As mentioned earlier, Part 2 is used to report the amount of taxes paid on wages, tips and other compensation. There are four types of taxes:
- income taxes withheld from employees’ paychecks (line 3).
- Social Security taxes on wages (line 5a) or tips (line 5b). The tax rate on this is 12.4% (covering both the employee and employer share of this tax).
- Medicare taxes (line 5c). The tax rate on this is 2.9 percent (covering both the employer and employee share of this tax).
- Additional Medicare taxes on taxable compensation over $200,000.The tax rate on this is 0.9%; it is paid solely by employees.
For Small Employers
An employer that owes employment taxes of $1,000 or less for the year (a payroll of no more than about $6,000) can file Form 944, Employer’s Annual Federal Tax Return if given IRS permission to do so. Call 800-829-4933 or send a written request, as you must receive permission before filing this form instead of Form 941.
If you need to correct Form 941, use Form 941-X, Adjusted Employer Quarterly Tax Return or Claim for Refund. For example, if wages were understated or Social Security tax on tips was overstated, and you discover the error, this form is used to correct it.
The Bottom Line
Employment taxes are a big responsibility. Learn more about what payments to employees are taxable and how to figure employment taxes in IRS Publications 15 (Circular E) and 15-B.