Remember the thrill of your first paycheck? Remember feeling slightly less thrilled when you discovered that your employer held onto some of it to pay for things like income taxes and Social Security?
Now it’s your turn to be the bearer of bad news. If you have employees, you have to pay into their income and FICA (Social Security and Medicare) taxes. And to do that, you have to withhold some of their paycheck.
Here we’ll go over IRS Form 941, the tax form that makes all of this possible.
What is Form 941?
Employers must submit IRS Form 941, also known as the Employer’s Quarterly Federal Tax Return, to report three different kinds of taxes:
federal income tax withheld from employees’ paychecks
other payroll taxes withheld from employee paychecks like social security and Medicare
the employer’s portion of social security or Medicare tax
You use Form 941 quarterly to report these taxes.
But you’ll make the tax payments themselves monthly or every two weeks through direct deposits (more on that below), depending on the dates wages are paid.
Who has to file Form 941?
If you pay wages to an employee (remember: there’s a difference between employees and independent contractors) you have to withhold or ‘hold onto’ some of their pay to cover things like income taxes, social security and Medicare. And you have to file Form 941.
If you’re a seasonal employer, you only need to File Form 941 in quarters where you’ve paid employee’s wages.
If you’re paying less than $1,000 in employment tax in a given tax year, you’re off the hook (but you’ll need to file Form 944 instead).
And if your employees are “household employees” (a house cook or nanny, that kind of thing), you’ll just fill out Schedule H from Form 1040.
How do I start withholding taxes?
If you’re a new employer, have never withheld money from an employee’s paycheck and never filed Form 941, talk to an accountant to make sure your bookkeeping and payroll are set up properly and that you’re signed up for EFTPS deposits.
You can do this over the phone by calling the IRS directly at 1-800-555-3453 (have your bank account info ready) or online here. You’ll then have to create a password for your Electronic Federal Tax Payment System account, which you’ll then have to log into here.
What if I have no employees working for me this quarter?
You probably still have to file Form 941. Only seasonal and agricultural employers who indicate their status on line 18 of the form don’t have to file Form 941. (See the IRS’s instructions to Form 941 for more information about who doesn’t have to file.)
What do I need to have ready before filing it?
Make sure to have your tax and payroll records on hand, as well as information about taxable tips your employees collected this quarter (here’s the IRS’s guide to tip recordkeeping).
How do I actually submit it to the IRS?
You can e-file Form 941 yourself online, or you can have someone else do it for you. The IRS explains both options more fully here.
What does it look like?
The current Form 941 PDF from the IRS contains a two page form, a voucher, and a fourth extra page of instructions. The first page looks like this:
In addition to the employer information section at the top, the form contains five parts.
The employer information section
Here you’ll indicate which period you’re reporting for, your name, address and employer identification number (EIN). Don’t use your social security number (SSN) or individual taxpayer identification number (ITIN) here. You can apply for an EIN online at IRS.gov/EIN.
Line 1 asks you for the number of employees currently working for you.
Line 2 asks for any wages, tips or other compensation you paid them.
Line 3 asks for income taxes you withheld from employees’ paychecks.
If you have no wages, tips or other compensation subject to social security or Medicare to report this quarter, check the box on line 4.
Line 5 is the heart of Form 941. It’s all about calculating your tax obligations and making sure they’re up to date.
Line 5a will ask you to multiply total wages by 12.4% to calculate your social security tax obligation on wages.
Line 5b ask you to do the same thing for tips.
Line 5c is all about calculating Medicare taxes. The current rate of 2.9% covers both your portion and the employees’ portion.
Line 5d is about any additional taxes on employee compensation over $200,000, which is taxed at 0.9% and paid by employees.
Line 5e will ask you to total up all of the amounts above.
Line 5f is for employers who have been asked by the IRS to pay additional taxes on unreported tips. (See the instructions for 941 for more.)
Lines 6-10 will walk you through the process of calculating your total taxes after adjustments, which you’ll make to account for things like sick pay and group-term life insurance.
Line 11 is about the qualified small business payroll tax credit for increasing research activities, which you can read more about here.
Lines 12-14 take your total taxes and subtract any payments you’ve already made to come up with your total balance due.
If you overpaid (i.e. line 13 is greater than line 12) you report that on line 15.
This part is where you’ll figure out how often you have to send the IRS the taxes you calculated in part 1. Most employers will have to deposit monthly or every two weeks. If you deposit semi-weekly, you’ll have to explain your tax liability on Schedule B of Form 941.
If you owe more than $100,000 in taxes for the quarter, you’ll have to deposit these taxes immediately. (Read more about the next-day deposit rule here).
Here you’ll indicate whether you’ve stopped paying wages altogether, and whether you have any seasonal employees. If you do, you might not need to file 941 every quarter.
If you want to let an accountant, lawyer or tax prep professional discuss this form with the IRS on your behalf, this is where you’ll give them permission to do so.
Sign and date here to ensure everything you’ve entered is correct.
Form 941-V, Payment Voucher
If you have a total balance due (i.e. line 14 contains a positive number) use this voucher to pay any taxes you owe to the IRS.
When do I need to Form 941?
If you’ve never filed 941, you’ll have to file your first copy at the end of the quarter in which your business first started paying employee wages. You’ll then have to file on the last day of the month that follows the end of every quarter after that.
If you’re not sure when the quarter begins and ends, consult the following chart from the IRS:
|The Quarter Includes…||Quarter Ends||Form 941 Is Due|
|First quarter: January, February, March||March 31||April 30|
|Second quarter: April, May, June||June 30||July 31|
|Third quarter: July, August, September||September 30||October 31|
|Fourth quarter: October, November, December||December 31||January 31|
If you’ve already made all your tax deposits for the quarter, you have an additional ten days after the above due dates to get your Form 941 filed.
Is that all I have to worry about?
Not quite. If you withheld taxes from an employee’s paycheck, you might also need to file Form 940, and there are some state and city-specific payroll taxes you might have to collect depending on where you do business. Talk to your accountant to make sure you’re clear on these obligations.
What if I don’t file?
If you don’t file 941, you’ll have to pay the IRS 5% of the tax due for each month that you don’t submit, to a maximum of 25%.
You could also incur a second penalty for making your tax payments late, which run between 2 and 15% of the underpayment, depending on how late your payments are.
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