IRS Tax Form 941 for Payroll Taxes
Here is everything you need to know about tax, payroll tax filing, quarterly returns and form 941.
Remember the thrill of your first paycheck?
Remember feeling less thrilled when you discovered that your employer held some money for income taxes and Social Security?
That is employment tax. Likewise now it it’s your turn for payroll tax filing and to file form 941 and be the bearer of bad news.
Certainly, you have employees, therefore, you pay into their income & FICA (Social Security & Medicare) taxes by withholding some of their paycheck.
Here, we’ll go over IRS Form 941,the tax form that makes all this possible.
What is Form 941?
Employers must submit IRS Form 941, also known as the Quarterly Federal Tax Return, to report three different taxes via payroll tax filing:
Most noteworthy, is the federal income tax in addition to other taxes withheld from employee paychecks like social security and Medicare. Finally the employer’s portion of social security or Medicare tax.
You use Form 941 quarterly to report these taxes on your payroll filing.
Most likely, 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 must 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 therefore 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 tax year, you’re off the hook (but you must 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 withhold payroll 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 and that you’re signed up for EFTPS deposits.
You can do this over the phone by calling the IRS at 1-800-555-3453 (have your bank account info ready) or online EFTPS website.
You’ll then have to create a password for your Electronic Federal Tax Payment System account, which you then must login here..
Do I have to make a filing if I have no employees working for me this quarter?
You still have to file Form 941. Only seasonal and agricultural employers who show 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 payroll filing?
Have your tax and payroll records on hand, and information
about taxable tips your employees collected this quarter (here’s the IRS’s guide to tip record keeping).
How do I submit payroll tax filings?
You can e-file Form 941 yourself online, or you
can have someone else do it for you.
What does a form 941 look like?
The current Form 941 PDF from the IRS contains a two page form, a voucher, and a fourth extra page of instructions. Besides the employer information section at the top, the form contains five parts.
The employer information section
Here you’ll show 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 working
Line 2 asks for any wages, tips or other
compensation you paid them.
Line 3 asks for income taxes you withheld from
If you have no wages, tips or other compensation
subject to social security or Medicare to report this quarter, check the box on
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 the amounts
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 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 tax credit for increasing research activities, which you can read more
about Instructions for form 941.
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
must 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 must explain your tax liability on Schedule B of Form 941.
If you owe more than $100,000 in taxes for the quarter, you must deposit these taxes immediately.
Here you’ll show 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.
Payment Voucher form 941-V
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 form 941, you must file your first copy at the end of the quarter in which your business first started
paying employee wages. You then must 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
941 Is Due
quarter: January, February, March
quarter: April, May, June
quarter: July, August, September
quarter: October, November, December
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 must worry about payroll tax filings?
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 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 submit tax filings?
If you don’t file 941, check out How The IRS Can Make Your Life Miserable. You will pay the IRS 5% of the tax due for each month you don’t submit your tax filing ,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.
Filing issues can also be found at Payroll Tax Issues and Pitfalls
TFRP or Trust Fund Recovery Penalty
What does TFRP mean? Trust Fund Recovery Penalty also known as TFRP, basically means you can be held personally liable for a penalty for not properly managing the employment taxes of a business. This is known as the “trust fund recovery penalty” (TFRP).
The TFRP is not a penalty in the traditional sense of being an amount added to a deficiency in tax due by an individual, corporation, or another taxpayer. Rather, the TFRP is a collection device that permits the IRS to impose liability on a “responsible person” who “willfully” failed to remit the employment taxes that were held in trust for the government.
TFRP cases rely heavily upon the fact pattern, and your success in defeating the penalty depends on the presentation of the evidence and knowledge of the IRS’s TFRP procedures.
The Two Prongs of the Trust Fund Recovery Penalty
There are two statutory components that must be established under IRC section 6672(a) before a person can be held liable for the TFRP.
First, the individual must be a “responsible person” for withholding and paying employment taxes to the IRS. Second, the person must have “willfully” failed to collect and remit the employment taxes due.
For purposes of IRC section 6672(a), the liability of a responsible person who has acted willfully is equal to the federal income taxes withheld from the employees’ wages and the employees’ share of the Social Security and Medicare (i.e., FICA) taxes.
These are the taxes that the employer is required by law to hold “in trust” and pay over to the government, hence the term “trust fund recovery.”
Under IRC section 6671(b), a “responsible person” includes any officer or employee of a corporation, or member or employee of a partnership, who has the duty to collect or pay employment taxes.
The mere holding of a corporate title, or the lack thereof, is not controlling on the issue of a person’s liability; the test is one of substance that asks whether the person had the status, duty, and authority to control the company’s financial affairs [Godfrey v. U.S., 748 F.2d 1568, 1575-76 (Fed. Cir. 1984)].
IRC section 6672 requires significant control over the business's financial operations and the ability to decide which creditors will and will not be paid; therefore, if a person’s financial authority is circumscribed by, for example, a senior officer who has the final say on which creditors will be paid, TFRP liability will not apply.
The principal factor that the IRS considers when examining which individuals may or may not be liable for the TFRP is who signs company checks. The IRS also investigates whether the person is an owner, officer, or director of the company; has the right to hire and fire employees; signs contracts with lessors/vendors or otherwise is active to the day-to-day affairs of the business; makes payroll tax deposits; or is responsible for the disbursement of payroll.
In defending putatively responsible persons, it is crucial to demonstrate that they lacked the requisite financial control exhibited by the foregoing factors through such things as company business records, e-mails, court pleadings in litigation involving the business, and affidavits from third parties, combined with effective written and oral advocacy.
An individual who qualifies as a “responsible person” is not necessarily liable for the TFRP; it must also be established that the responsible person acted “willfully” in failing to collect, account for, or pay the employment taxes. Under IRC section 6672, willfulness has been defined as a “voluntary, intentional, and conscious decision” to pay other creditors rather than remit the trust fund taxes to the government (Godfrey).
Courts have held that a reckless disregard of the duty to collect and pay employment taxes satisfies the willfulness prong, but mere negligence is never a sufficient basis for liability.
An advisor must be prepared to prove with evidence and arguments that even if a client was a responsible person, she did not have knowledge that the taxes were not paid, did not have the authority to decide the priority of payments to creditors, or otherwise was not willful with respect to the nonpayment of the employment taxes.
The Trust Fund Recovery Penalty Investigation
The TFRP investigation is conducted by a revenue officer from the IRS’s collection function. The revenue officer typically requests bank signature cards, canceled checks, and other business records to identify potentially responsible persons. If the company does not provide these documents voluntarily, an administrative summons will be used to demand the records from the business or from third parties.
The revenue officer will examine the records and then schedule interviews with persons who may be responsible for the failure to pay the employment taxes. If a potentially responsible person does not voluntarily agree to appear before the revenue officer, he is likely to receive a summons to command his presence for an interview. The individual will be told that he can bring an IRS-authorized representative to the meeting.
The purpose of this interview is to secure from the individual Form 4180, Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes. Form 4180 is a critically important document, and it can be perilous if an individual attends the interview or completes Form 4180 without legal representation and thorough preparation by counsel.
The document contains direct questions specifically designed to elicit responses that show whether the individual was a responsible person and whether she acted willfully. It is often necessary for the individual and her counsel to provide the revenue officer with a full description of the individual’s limited role and responsibilities in the business and to resist responding to questions in the “yes” or “no” format established by the interview form.
The individual should also make certain that Form 4180 includes an accurate written statement of the individual’s defense to the TFRP. When the interview has been completed, the revenue officer will ask the individual to sign Form 4180.
Challenging a Proposed Trust Fund Recovery Penalty Assessment
At the conclusion of the investigation, the revenue officer will decide which individuals will receive notices of their potential liability for the TFRP. Revenue officers are notoriously overbroad in their TFRP determinations, often including persons with marginal liability exposure. The revenue officer will mail Letter 1153(DO) and Form 5471, Proposed Assessment of Trust Fund Recovery Penalty, to the individuals determined to be liable for the TFRP. The TFRP notice must be sent to the individual’s “last known address” to be enforceable [IRC section 6672(a)(2)].
An individual who qualifies as a “responsible person” is not necessarily liable for the TFRP; it must also be established that the responsible person acted “willfully.”
An individual receiving Letter 1153(DO) and Form 5471 has 60 days to file a written protest with the IRS Appeals Office to challenge the TFRP determination. The protest should contain a complete discussion of the facts and legal authorities that show that the individual was not a responsible person for the company’s employment taxes or that he did not act willfully. The protest, or subsequent submission to the Appeals Office, should include documentary evidence, such as business records and affidavits, that supports the individual’s case. At the conference, an authorized representative will present arguments that the individual should not be held liable for the TFRP or that the penalty should be compromised on the basis of hazards of litigation.
Trust Fund Recovery Penalty Post-Assessment Procedures
If the Appeals Office upholds the TFRP, the IRS will assess the penalty against the individual and issue notice and demand for payment of the trust fund taxes. The individual can dispute the IRS’s decision in court, but first must pay a “divisible” portion of the penalty for each quarter of the employment tax assessment and file a claim for refund with the IRS.
The divisible amount of the tax is equal to the withholding taxes attributable to a single employee for each payroll tax quarter covered by the penalty assessment. If the IRS issues a Notice of Disallowance of the refund claim or takes no action on the claim for a period of six months, the individual can commence a refund suit. The lawsuit must be initiated within two years of the date that the divisible tax was paid, or two years from the date that a Notice of Disallowance was issued. The action can be filed in the local United States District Court or the Court of Federal Claims.
Fighting the Law and Winning-Trust Fund Recovery Penalty
Preparation is crucial to winning a TFRP case. A professional advisor must exhaustively develop the facts and review company business records, correspondence, and e-mails. These documents, together with affidavits from third parties, should be used to show the limitations on the authority and the lack of willfulness of the potentially responsible person.
If you are facing a TFRP, and need more information, you can get expert Advice from TheCPATaxPRoblemSolver for free. 844-888-1040.
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If you have workers in your company you are expected to owe payroll tax. Based on the size of your payroll you can need to make tax deposits with the IRS as soon as you pay your workers on the day after.
Whenever taxes are not paid on time then the IRS imposes interest and fines. If you let things go too long the fines and interest can surpass the payroll taxes.
HOW PAYROLL TAX ISSUES AND PROBLEMS OCCUR
Payroll tax issues occur in a variety of ways. When a business is short on cash and they are not paying your vendors or landlord, they are going to be out of business very soon.
In comparison, the IRS works slowly. It can be months before the IRS gets serious. Many company owners hope they will have enough money to fix their payroll problems by the time the IRS calls or visits.
Unfortunately, it does not normally happen. Instead, the issues with payroll taxes increase quarter after quarter, and interest and fines continue to accrue. By the time IRS appears things got so bad that the IRS threatens to shut down the company.
In certain cases, failure to pay payroll taxes can be a criminal offense subject to incarceration or a fine penalty. With my professional help, I may be able to prevent the IRS from making the owner taking personal responsibility for these payroll tax debts.
Under the IRS rules and regulations, there are tools that you are entitled to include the ability to contact a CPA to help you get tax relief. As a CPA with expertise in IRS tax cases, I will help you address your tax problems.
SOLUTIONS FOR PAYROLL TAX ISSUES & PROBLEMS
Solutions for your problems may include:
-Send an Offer In Compromise deal to reduce the tax debt
-Get a short-term deferral of your tax liability to give you time to get back on track
-Negotiate an Installment Payment Plan to settle your tax obligation
-Check your records to find if the IRS has determined your taxes correctly
-Determine if the IRS has expired or will expire early to recover your payroll tax debt
-Negotiate waivers of federal tax obligations so you can get a loan to cover your taxes
-Getting your tax debt ruled noncollectable so you can get a tax break from your old payroll tax debts
-Seeking relief from payroll tax levies
-Filing interest and penalty waiver charges
Each case is of course different and you need an experienced tax professional to advise you about the best approach to your situation.
BANKRUPTCY FOR PAYROLL TAX ISSUES & PROBLEMS
Insolvency filing isn't going to fix the payroll tax issues. Even if the company is a corporation, the IRS may be entitled to obtain from the owners, officers, and often even independent contractors and workers a portion of the payroll tax debt. This is defined as a penalty for the trust fund, a penalty for the recovery of trust assets, a penalty of 100 percent, a criminal penalty, or a penalty under Code Section 6672.
As a tax expert, I will help you decide whether you are responsible for the reclamation penalty for the trust fund. If we agree you are not a responsible officer subject to the penalty for the recovery of the trust fund we will negotiate with the IRS tax officers and IRS Appeals Officers to make them withdraw the penalty for the trust fund.
I would also inform you on the best way to make any partial payments to the IRS to will your personal responsibility for the fiduciary fund tax. Many company owners make hundreds of thousands of dollars of payments to the IRS only to find later that the payments have not reduced their personal IRS payroll tax debt.
When having overwhelming tax problems, a majority of taxpayers are not comfortable calling the IRS for answers and that's where I can help.
I know what it takes to get you qualified for the best tax relief possible.
Call 844-888-1040 for information.