Taxing Matters: Form 941 Explained

Form 941 is a Federal Employer Tax form affects businesses large and small who have employees that receive wages. As an employer, you are required to withhold income, social security and Medicare taxes (also known as Federal Insurance Contributions Act (FICA) taxes) on behalf your employees, thus making the need to file Form 941 vital and necessary.

That said, if you use a third party payroll service provider, your burden for filing this form and the risk of notices and penalties may be slightly lifted. That’s because all reporting and filing will be completed by the provider. More on that to come…

For those of you who aren’t quite ready to turn your payroll reigns over to a service provider, filing Federal tax forms can feel a little overwhelming. To help, I’ve broken out some of the most frequent questions I receive surrounding the 941 below, as well as a few best practices to follow so that you can avoid any unwanted notices or penalties.

If you’re all done and still have questions, just jot them down in the comments section and we’ll be in touch to help out.

  1. In simple terms, what is the 941?
    It is a quarterly employer federal tax return which includes employee and employer withholding.
  2. Why is it important that employers file the Form 941?
    The form actually serves as a record of all Federal and FICA wages and tax withholdings. But, more importantly, it’s required by law to be filed each tax quarter.
  3. Are there penalties involved if the form isn’t filed?
    Yes, but generally the IRS will first send a notice to employers to alert them of a missing return or deposit. Forms are usually discovered missing when the IRS uses these returns to reconcile the payments they’ve received. If employers don’t file a return after receiving their notice(s) then the IRS will apply 5% to 25% of the unpaid tax due. You can find more information on penalties in the IRS’s Employer’s Tax Guide: Publication 15.
  4. Does the form have an effect on the employee if their employer doesn’t file the 941?
    No. The employer is responsible for withholding and making payments based on the W-4 provided by the employee.
  5. What’s the best way for employers to report, file and make deposits for the 941?
    Using a third party-payroll provider of course!Not only do payroll providers have experience in filing the 941, but they also have access to all the payroll data to automatically populate what’s needed to fill out the form. Sentric, for example, has been around for 20 years and have run quarterlies for thousands of clients multiple times a year. So, I think it’s safe to say we’ve gotten pretty good at it.If an employer doesn’t use a payroll provider, the other option is to file the form on Payments can be made by using the free Electronic Federal Tax Payment System (EFTPS). This service is offered by the U.S. Department of Treasury to make deposits. The IRS also provides Instructions for Form 941 to help guide employers through the process.
  6. What information should employers have ready when filing?
    Following the Form 941, employers will need:
    – General Business Info: EIN, company name, address
    – Wage & tax information which can be obtained from their labor distribution report or other another report the employer uses to track total payroll numbers
    – To know their Deposit Schedule
    – General information about their business: Have you stopped paying wages? Are you a seasonal Employer
    – Their third-party payroll provider’s information if applicable
  7. What happens if an employer doesn’t withhold enough?
    If employers don’t withhold enough FICA, they will need to make an adjustment to whichever side is lacking, employee or employer. In the event the employer hasn’t withheld enough from the employee, they may need to provide the employee with an adjusted W-2 and the employees may need to re-file their income tax return.
  8. How frequently does the 941 need to be filed?
  9. When are the filing deadlines each quarter?
    First quarter: April 30th
    Second quarter: July 31st
    Third quarter: October 31st
    Fourth quarter: January 31st
  10. How often do employers make deposits?
    Deposit schedules can vary on a quarterly, monthly or semi-weekly basis and are determined by the amount of tax employers withhold.
  11. What if an employer makes a mistake on the Form 941?
    Employers should file the Form 941x as soon as an error is discovered; however the corrected form has to be filed in the same quarter the employers found the error. For example – the employer finds an error on their Q1 return in the Q3, the adjusted form must be filed by the Q3 deadline.
  12. Help, I got a notice regarding my 941, now what?
    Employers that use a third-party payroll provider should send the notices to their payroll providers as soon as possible so they can take the steps necessary to address and correct the issue.
    Those who do not to use a payroll provider should first review to see what the notice is regarding: Failure to file or failure to pay. Then, they should locate their records to make sure they’ve filed timely and correctly. If there is an error on the IRS’s end, then the company should contact the IRS as soon as possible. If the error is on the employer’s end, then they should file/make deposits immediately to avoid penalties.
  13. What if I overpay?
    It’s best practice to claim a refund directly on the Form 941 so that the IRS can issue the employer a check. Doing so will help keep checks and balances in order. It’s often more difficult to track an employer refund claim when filed with the next return.
  14. Are there any additional forms an employer will have to file besides the 941?
    In some cases an employer may have to file the Schedule B. This is an additional form that must be completed by semi-weekly depositors. Since the deposit schedule is more frequent it helps the IRS determine deposits have been made in a timely fashion by showing the dates of liability (the amount due) based on employee wages.
Helpful Links:

Form 941

Instructions: How to fill out the form

Employer’s Tax Guide: Publication 15

Electronic Federal Tax Payment System (EFTPS)

Schedule B

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