Regardless of how often tax deposits are made, most employers who withhold federal income tax, social security tax, and Medicare tax must file quarterly tax returns. Employers filing quarterly fill out Form 941,Employer's Quarterly Federal Tax Return. Very small employers may be designated by the IRS to file Form 944 annually to report wages and taxes, while agricultural employers file Form 943 annually.
• Form 941, Employer's Quarterly Federal Tax Return
• Form 941 is used to report the following:
• Wages, tips, and other compensation
• Amount of federal income tax withheld from wages and tips
• Total wages and tips subject to social security tax and Medicare tax
• Total deposits for the quarter and the balance due or any overpayment
• COBRA subsidy for certain terminated employees
Form 941 is due on or before the last day of the month following the end of the quarter. (Quarters end on March 31, June 30, September 30, and December 31.) Employers may take a 10-day filing extension if they have made timely tax deposits for the full amount due. If the due date for the return falls on a Saturday, Sunday, or legal holiday, the return must be filed on the next business day.
Some Employers Do Not Have to File Form 941 Quarterly
Exceptions to the Rule Quarterly filing is not required for seasonal employers with no tax liabilities and no wages paid during the quarter. If you use this option, be sure that the seasonal box on Line 16 is checked when Form 941 is filed.
Employers who only employ household employees use Form 1040, Schedule H, U.S. Individual Income Tax Return.
Employers of farm workers use Form 943, Employer's Annual Tax Return for Agricultural Employees.Business reorganizations and terminations require special review to ensure that wages and taxes are reported correctly.Employers with a history of an annual tax liability that is less than $1,000 and that are designated by the IRS to file Form 944, Employer's Annual Tax Return.
Filing Form 941
File Form 941 with the IRS at the address designated on the form's instructions based on the location of your business.
When mailing Form 941, in order for the IRS to consider the form to be filed timely it must be postmarked by the form's due date. Mail the return certified, with a return receipt requested, to be able to document delivery to the IRS.
Form 941 Preparation
Form 941 is no longer processed by machine scanning. Complying with the following suggestions will assist the IRS in processing the form efficiently:
Make dollar entries without the dollar sign and comma (0000.00).
Enter negative amounts with a minus (-) sign preceding the amount.
A copy of the Form 941 instructions are found in the Appendix, pp. A-65.
All states are required by federal law to have a state unemployment compensation law. State laws work in conjunction with federal law. Federal unemployment taxes provide funds needed to administer both the federal and state programs, while state unemployment taxes fund benefits that unemployed workers receive. In addition, the federal program provides loans to state programs that do not have enough funds available to finance the benefits paid to workers who lose their jobs.
While the specific procedures for calculating state unemployment tax vary from state to state, there are common threads tying them together. Employers should check the states where they operate for the reporting requirements applicable in each state.
Electronic/magnetic media reporting.
Many states require employers to file their quarterly wage information electronically or on some type of magnetic media, either tape, cartridge, CD, or diskette. In those states that require or permit magnetic media filing, some will accept only tape reporting, while others will accept either a tape, CD, or diskette. Some states also accept electronic reporting. There is no consensus among the states regarding electronic and magnetic media reporting requirements, so employers must carefully research the requirements in the states where they operate. Most of the states that require electronic or magnetic media reporting, however, do use a threshold for triggering the requirement that is similar to the federal threshold for filing Forms W-2 electronically.
FUTA (Federal Unemployment Tax Act)
The Federal Unemployment Tax Act (FUTA) was enacted to help the various states fund their federally mandated unemployment compensation programs. Since the programs themselves are regulated and administered by the states, the benefits and regulations differ from state to state. However, employers from all states must pay and report FUTA tax.
Note - Employers from all states must pay and report FUTA.
FUTA is an employer tax. No FUTA tax is withheld from employees' wages.
FUTA does not apply to independent contractors or other nonemployees.
Rate of 6.0% The FUTA tax rate is 6.0% of the first $7,000 of each employee's annual wages.
Credit of 5.4%
Employers in most states can take a 5.4% credit against the gross taxes paid for state unemployment tax. You can get this credit even if your state's rate is lower than 5.4%. To get full credit you must make timely payments to your state fund by the due date for Form 940 (discussed below).
Your state must not be in arrears in repaying loans borrowed from FUTA funds.
For 2013, employers in 14 states and territories paid a higher FUTA tax rate due to unpaid loans needed to pay unemployment benefits. In 2014, employers in more than 14 states and territories may lose a portion of the 5.4% credit due to outstanding loans.
Effective Rate of 0.6%
With the full credit, your effective FUTA tax rate is 0.6% (6.0% less 5.4% credit). Any credit loss is not computed until the end of the year and affects only your fourth-quarter payment. For the first three quarters, you pay 0.6% FUTA tax for each employee on the first $7,000 in taxable wages. Some States May Not Qualify for the Full Credit
While employers in most states have been receiving the full 5.4% credit reduction, it is not automatic.
Note: While employers in most states have been receiving the full 5.4% credit reduction, it is not automatic.
$500 Threshold - A FUTA tax deposit is required only if the amount due for the quarter plus any previous balance for a prior quarter during the year is more than $500.
Calculating FUTA Tax
The following is an example of calculating a FUTA tax deposit:
Assume that there are 20 employees, each paid $1,400 per month. At that rate, each employee will have earned $7,000 in five months. At the beginning of the second quarter (April 1), one of the employees who was on the payroll since January leaves the firm, and a replacement is hired at $2,000 per month. For the first three quarters, FUTA tax would be as shown below. The fourth quarter has no wages subject to FUTA tax.
Since the first-quarter's FUTA tax liability is over $500 ($504.00), the first quarter's liability must be deposited by April 30. As the second quarter's liability ($355.20) is less than $500.00, it can be carried forward to the third quarter. The FUTA tax liability at the end of the third quarter is $361.20 ($355.20 + $6.00), which is less than the $500.00 FUTA liability deposit threshold. Therefore, the total liability at the end of the third quarter is carried forward to the fourth quarter.
Now assume that in December you learn that the federal tax credit of 5.4% is reduced by 1.2% for employers in your state. The effective FUTA tax rate is now 1.8% (6.0% 4.2% = 1.8%). To calculate the fourth quarter liability, multiply the FUTA wages for the year by the new rate and subtract for desposits already made.