Most businesses with employees must file a quarterly IRS report that details the employment taxes that they owe. They must submit this information on IRS Form 941, also called the Employer’s Quarterly Federal Tax Return. Companies who don’t file it as required may face penalties.
Key Points
• IRS Form 941 is used for quarterly reporting of employment taxes by businesses.
• Essential information includes business address, EIN, employee count, and tax withholdings.
• The form includes sections for worker details, tax liability, and authorized contacts.
• Businesses can file by mail or through the Modernized e-File system.
• Avoid penalties by filing accurately and on time, and by claiming only eligible credits.
What Is IRS Form 941?
Unlike individual taxpayers, who typically have to file just one tax return per year, many businesses are required to file quarterly tax returns. Companies use IRS Form 941 to calculate and record certain taxes they’ve withheld from employee paychecks over the preceding three months. The form reports the total federal income tax and Social Security and Medicare payroll taxes paid by the employer.
When a business fails to file its IRS Form 941 on time, or if it underreports its tax liability, the company can be subject to IRS penalties. For example, the IRS can impose a penalty of 5% of the outstanding tax bill for every month an overdue business return hasn’t been submitted, as well as an additional 0.5% monthly fee for late payment, for up to five months.
Who Needs to File Form 941?
Nearly all businesses that have employees are required to file a Form 941. There are, however, a few exceptions. Companies that usually aren’t required to file an IRS Form 941 include:
• Seasonal businesses that don’t have any employees during the past quarter
• Businesses that hire only farmworkers
• Employers of household employees, such as housekeepers and full-time childcare workers
Recommended: What is a Sole Proprietorship?
Understanding Form 941 Sections
To fill out IRS Form 941 accurately, you need to know and understand the requirements of each section. The top section is for employer identification. It includes your employer identification number (EIN) plus your personal name, your trade name, and your address. There’s also a space to indicate which quarter you’re reporting on.
The rest of the form is divided into five parts.
• Part 1: This is where you provide information about the business’s workers, including the number of employees, their wages, and details about the taxes withheld. It shows you how to calculate the tax that’s owed, along with any special adjustments. The numbers add up to either a balance due or an overpayment.
• Part 2: This segment asks about your deposit schedule and tax liability for the quarter. In Part 2, you take the balance or overpayment from Part 1 and compute your total tax liability for the quarter. This doesn’t take into account adjustments like small business tax deductions and business tax refunds.
• Part 3: Here you record if your business has closed or has stopped paying wages. The form also asks if you’re a seasonal employer. If none of those situations apply, you don’t have to complete this section.
• Part 4: This section asks you to specify an employee, a paid tax preparer, or another person who is authorized to discuss this return with the IRS. This can be helpful for business owners who don’t prepare their tax returns themselves, but you are not required to provide this information.
• Part 5: At the bottom of page 2, you’ll need to print your name, the date, and your best daytime phone number, and sign the form. Below that is an optional section in which paid tax preparers (that is, someone who is not in your employ) would enter their contact information and sign as well.
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Step-by-Step Guide to Filling Out Form 941
Before filling out the form, you’ll want to look over the IRS’s Form 941 instructions. After that, gather the necessary basic information, starting with the business’s address and EIN. You’ll also need to tabulate the number of employees and the total wages and tips they received during the quarter.
Next, you’ll calculate or enter the total amount of federal income taxes, Social Security tax and Medicare tax you’ve withheld from all of your employees’ wages during the quarter. Typically your company’s payroll or accounting software will track these numbers and can give you the data. (It may even be able to complete Form 941 for you.)
Alternatively, you can get these numbers from:
• Your monthly or semiweekly employment tax deposits
• Your payment history in the Electronic Federal Tax Payment System (EFTPS)
• Your bank account statements
If you’re making monthly deposits, it may be convenient to align your invoicing with that schedule. Consider adopting Net 30, a common business practice that encourages creditors to pay you within a month.
Regardless, with these figures, you’ll be able to fill out Part 1, and the results you get there will make completing Part 2 very easy. Parts 3, 4, and 5 are very simple and should only take a few minutes.
Calculating and Reporting Payroll Taxes
To calculate and report your payroll taxes correctly, the key parts of Form 941 are lines 5a, 5b, 5c, and 5d. That’s where you report the wages and tips that qualify as taxable for Social Security and Medicare, and multiply those amounts by the correct percentage. Pay special attention to where the decimal point is on the multiplier.
Filing and Payment Options
If you’re wondering where to send Form 941 once complete, you have two filing options. You can mail it to one of the four IRS addresses listed in the instructions. Or you can submit the information online using the Modernized e-File (MeF) system available on the IRS website.
To make a payment, you can send a check or money order by mail using the Form 941-V voucher, which ensures that the IRS will process it correctly. Alternatively, you can pay electronically with a credit card, debit card, or digital wallet using one of the three payment processors authorized by the IRS.
If you’re having difficulty paying your business’s quarterly taxes, it might be worth talking to an accountant about the pluses and minuses of covering the debt with a small business loan.
Common Mistakes to Avoid When Filing Form 941
Make sure that your filing is free of mathematical errors, such as inaccurate wage and tip reporting.
Per the IRS, use the fractions of cents line (line 7) only for rounding issues related to the employee share of Social Security and Medicare taxes.
And remember, if you’re a seasonal employer and you didn’t have any employees this quarter, then check the box in Part 3, on line 18. Doing this accurately can help you avoid a small business audit.
Overall, rest assured that errors on Form 941 are common enough that the IRS has a form just for amending it: Form 941-X.
The Takeaway
Employers are responsible for calculating and paying employment taxes each quarter. On the federal level, this typically involves IRS Form 941, which records the amounts your business will pay for employees’ income tax and payroll taxes. Understanding the details and deadlines of this form will help you meet your tax filing and payment obligations, while also avoiding penalties whenever possible.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
FAQ
What does IRS Form 941 do?
Form 941 is the Employer’s Quarterly Federal Tax Return, used by businesses to calculate and report employee wages and the Social Security and Medicare taxes paid by the employees. It also indicates whether an additional tax payment is required for the quarter.
Do I have to file a Form 941 if I have no employees?
No. Businesses that don’t have employees don’t have to file the 941 form. This includes seasonal employers that don’t need workers during a particular quarter.
What happens if you don’t file a Form 941?
If a business is required to submit Form 941 but doesn’t, it risks penalties. The IRS will charge a failure-to-file fine of 5% of the unpaid tax total, plus 5% for each additional month the tax remains outstanding, up to a maximum of 25%. The IRS also charges interest on penalties, calculated based on the day the taxes were due.
The business could also face a failure-to-pay penalty of 0.5% of the unpaid tax amount, assessed each month.
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