Lesson 7- Tax deposits and filing a return to report payroll taxes
Small Business Tax Workshop

    Overview

    Welcome to the workshop on Tax Deposits and Filing a Return to Report Payroll Taxes.

    In this workshop we'll cover your responsibilities for depositing taxes and filing a return to report payroll taxes.

    Specifically we'll explain the federal tax deposit process, deposit requirements and penalties, and show you how to file any of the following: Form 941, Employers Quarterly Federal Tax Return, if you are a quarterly filer; Form 944, Employers Annual Federal Tax Return, if you’re designated as an annual filer; and/or Form 943, Employer's Annual Tax Return for Agricultural Employees, if you're an agricultural employer.

    Making tax deposits

    How often you pay these taxes depends on the type of tax and on the amount.

    There are a number of rules about when to deposit your payroll taxes, but the best time to make a tax deposit is the same day you pay your employees.

    That way you get it done right away without any worries about missing deadlines or not having the money when it's due.

    You can deposit anytime up through the deposit due date, but if you deposit late, penalties will apply.

    Deposit Due Dates

    First, if the payroll tax is less than  $2,500 for their current quarter or the preceding quarter, and you did not incur a $100,000  next-day deposit obligation during the current quarter, you can pay it with your Form 941, Employer's Quarterly Federal Tax Return.

    But you have to file on time for this rule to apply.

    We'll talk more about Form 941 later. Second, if the payroll tax is $2,500 or more for the quarter, or you aren't sure it will be less than $2,500 for the quarter, and your liability for the prior quarter wasn't less than $2,500, your deposit is based either on a monthly or on a  semiweekly schedule.

    Determining Deposit Schedule – Using Lookback Period

    To know whether you are on a monthly or  semiweekly deposit schedule, you use a specific 12 month period called the  lookback period.

    Your lookback period is the 12 month period ending on June 30th from last year. For example, to figure out your deposit schedule for the current year, you need to look back to those four previous quarters ending on June 30th of last year.

    Monthly Depositor

    If you are a new employer and had no employees during the lookback period, or if all your taxes total $50,000 or less for the period, you are a monthly depositor.

    If your total taxes were more than fifty thousand dollars, you make deposits based on the semi-weekly schedule.

    As a monthly depositor you deposit monthly payroll taxes by the 15th day of the following month.

    If a deposit is required to be made on a day that is not a business day, make the deposit by the close of the next business day.

    A business day is any day other than a Saturday, Sunday, or legal holiday.

    The term legal holiday for deposit purposes means any legal holiday in the District of Columbia.

    Legal holidays in the District of Columbia are provided in IRS Publication 15, Employer's Tax Guide.

    Depositing and reporting are separate actions.

    Even though you may pay monthly throughout the quarter, you only file Form 941 once at the end of the quarter.

    Semiweekly Depositor

    Under the semiweekly deposit schedule, deposit employment taxes for payments made on Wednesday, Thursday, and/or Friday, by the following Wednesday.

    Deposit taxes for payments made on Saturday, Sunday, Monday and/or Tuesday, by the following Friday.

    If you're a semiweekly depositor ,you must complete Form 941 Schedule B, Report of Tax Liability for Semiweekly Schedule Depositors, and submit it with a Form 941.

    The Schedule B has daily sections on it.

    This allows you to report tax liabilities corresponding to the dates when wages were paid. Again, use the Schedule B to report the tax liability and not the deposits.

    Also it's important to note if you have more than one pay date during a semiweekly period, and the pay dates fall in different calendar quarters, you'll need to make separate deposits for the separate liabilities.

    For additional rules regarding  semiweekly deposit rules, please see IRS Publication 15, Employer's Tax Guide.

    $100K Next-Day Deposit Rule

    There is a third deposit rule you should know about.

    If you accumulate 100,000 or more dollars in taxes on any day during a monthly or semiweekly deposit period, you must deposit the tax by the next business day, whether you are a monthly or semiweekly scheduled depositor.

    For more information on the $100,000  next day deposit rule, see IRS Publication 15, Employer’s Tax Guide.

    The deposit rules differ a little bit for some other returns such as the Form 944, Employer's Annual Federal Tax Return, and Form 943, Employer's Annual Tax Return for Agricultural Employees.

    You can find information about the deposit rules in the instructions for each form.

    Also you can check Publication 15, Employer's Tax Guide, or for the Form 943, check Publication 51, Agricultural Employer's Tax Guide.

    Late Deposit Penalties

    It's not uncommon for a new business to run short of cash.

    But don't forget that the money you hold for your employees is not yours to spend.

    You are entrusted with these funds.

    That's why the penalties are so strict.

    The penalties for late deposits can be a large and unnecessary expense for your business.

    In fact, businesses can fail because they don't clearly understand and follow the tax deposit requirements.

    In addition, the owner of the business can become personally liable for the employment taxes which we'll discuss in a moment.

    So make your tax deposits on time.

    If federal income, Social Security, or Medicare taxes that must be withheld — that is trust fund taxes — aren't withheld or aren't deposited or paid to the US Treasury, the trust fund recovery penalty may apply.

    The penalty is 100 percent of the unpaid trust fund tax.

    If these unpaid taxes can't be immediately collected from the employer or business, the trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, or paying over these taxes, and who acted willfully in not doing so.

    Electronic fund transfer for federal tax deposits

    You must use electronic fund transfer to make all federal tax deposits.

    Generally electronic fund transfers are made using the Electronic Federal Tax Payment System or EFTPS.

    EFTPS is a free service provided by the Department of Treasury. EFTPS is safe, secure, and available 24/7 over the internet or by telephone.

    For more information go to the EFTPS web site at www.eftps.gov.

    Additional information about EFTPS is also available in IRS Publication 966, Electronic Federal Tax Payment System — A Guide to Getting Started.

    If you do not want to use EFTPS you can arrange for your tax professional, financial institution, payroll service, or other trusted third party, to make deposits on your behalf.

    Services provided by your tax professional, financial institution, payroll service, or other third party may have a fee.

    Reporting Payroll Taxes

    So how do you file a return to report your payroll taxes?

    Each calendar quarter almost all employers who pay wages subject to tax withholding must file Form 941, Employer's Quarterly Federal Tax Return, unless you receive an IRS notification that you are eligible to file Form 944, Employer's Annual Federal Tax Return instead.

    There are some employers however, who do not need to file Form 941 quarterly.

    If you are a seasonal, household or agricultural employer, there are publications that may help you.

    Go to www.irs.gov and enter those terms in the search box to find more information.

    Now let's look at the payroll reporting requirements for the majority of small businesses by taking a closer look at Form 941.

    You use Form 941 to report wages paid and the taxes due on those wages quarterly.

    A quarter consist of three calendar months starting on the first day of the first month and ending on the last day of the last month of that quarter.

    Form 941 is due at the end of the following month.

    This makes the due dates April 30th, July 31st, October 31st, and January 31st. In addition, if you timely deposited all taxes when due, you have 10 additional calendar days from the due date to file.

    Also if the due date for filing Form 941 falls on a Saturday, Sunday, or legal holiday it’s due the next business day.

    As we said earlier, depositing and reporting are separate actions.

    Even though you may pay throughout the quarter, you only file Form 941 once at the end of the quarter.

    Completing Form 941

    You'll need several pieces of information to complete your Form 941.

    You will need an Employer Identification Number.

    You'll need to know the number of employees, total wages paid, include tips reported, taxable fringe benefits provided, and other forms of compensation paid to the employees.

    Also you'll need to report the amount of withheld income taxes and this means all income taxes withheld from your employees including tax withheld from tips, taxable fringe benefits, and certain other payments.

    To complete the 941 include the total of all wages subject to Social Security, Medicare, and additional Medicare taxes.

    This amount includes any sick pay and taxable fringe benefits subject to Social Security, Medicare, and additional Medicare taxes. Have records of all tips, this will be added to the wages and other compensation paid.

    Always remember to have a record of your tax deposits available when you prepare your quarterly returns.

    This information helps you accurately report the amounts of your deposits and the type of deposit schedule you are required to use.

    You may have paid wages but were not required to withhold income taxes.

    You still include those wages on Form 941.

    Do not include your contributions to employee plans that are excluded from the employee's wages such as 401k and cafeteria plans.

    Wage Base

    Also there is a limit on the amount of wages subject to Social Security taxes called the wage base.

    Once the amount you have paid to an employee as wages reaches the wage base, do not withhold any more Social Security tax.

    The wage base may change from year to year.

    IRS Publication 15 shows the current year's wage base for Social Security taxes. All wages paid however, are subject to the Medicare tax.

    In addition, wages paid over a certain amount are subject to additional Medicare tax.

    If you owe additional taxes however, and the taxes owed are less than one dollar, then you do not have to pay the amount.

    If you deposited more than the correct amount for a quarter, you can choose on Form 941 for that quarter to have the overpayment refunded or applied as a credit to your next return. Form 941 must be signed.

    If the business is a sole proprietorship the return must be signed by the owner of the business.

    If a partnership or unincorporated organization by a responsible and duly authorized member, partner, or officer having knowledge of its affairs.

    If a corporation by the president, vice president, or other principal officer duly authorized to sign.

    Form 941 may also be signed by a duly authorized agent of the taxpayer if a valid power of attorney has been filed.

    In addition you may designate someone else to discuss the Form 941 with the IRS, by completing the third-party designee section of the form.

    For instance, if the IRS has a question, you may want us to contact your accountant.

    Penalties and Interest

    There is a penalty for filing a late Form 941 return.

    There are also deposit penalties for making late deposits and for not depositing the proper amount.

    In addition, there are penalties for willful failure to file returns and to pay taxes when due, for filing false returns, and for submitting bad checks.

    Then, interest is charged on the total of unpaid tax and the penalty.

    For more information on penalties and interest, we encourage you to review Notice 746, Information About Your Notice Penalty and Interest.

    It's easy to correct employment taxes if you make a mistake.

    Go to www.irs.gov, enter “correcting employment tax” in the search box and then click on that link.

    This will lead to the correcting employment taxes page where you can download the Form 941-X, Form 943-X, or Form 944-X, as well as the instructions on how to correct the errors.

    Employers can submit the correction as soon as they discover an error, and in the case of an overpayment, select to apply the overage to the next quarter or request a refund, as long as the statute of limitations remains open.

    Benefits of e-file

    There are options for filing Form 941 and in fact most forms with the IRS.

    You can electronically file or mail a paper return.

    There are a number of benefits to e-filing. It saves you time, is secure and accurate, and you receive an acknowledgement within 24 hours.

    There are two convenient ways that a business can file electronically or e-file.

    You can purchase an IRS approved software to submit the forms yourself, or hire an IRS authorized provider.

    For more information on how to e-file, search “e-file employment tax” on www.irs.gov.

    Outsourcing Payroll Duties

    As the common law employer, you may outsource some or all of your federal employment tax withholding, reporting, and payment obligations.

    If you outsource some or all of your payroll and related tax duties, that is withholding reporting and paying over Social Security, Medicare, FUTA, and income taxes to a third party payer, you will generally remain responsible for those duties including liability for the taxes.

    However, an exception exists when using a Certified Professional Employer Organization (CPEO).

    For additional information on outsourcing payroll and a discussion about each of the common third party payer relationships, go to www.irs.gov and enter those terms in the search box.

    Information is also available in Publication 15, Employer's Tax Guide.

    Summary

    In this workshop we discussed the basics of making tax deposits and filing a return to report payroll taxes.

    Specifically we talked about due dates for tax deposits and penalties, how to determine if you are a monthly or   semiweekly depositor, and making deposits electronically.

    We also discussed requirement for reporting payroll taxes on Forms 941, 943, 944, and 940, as well as filing Forms 941, 943, 944, and 940 electronically.

    Don't forget to consult IRS Publication 15, Employer's Tax Guide, if you need more information.

    You can also go to www.irs.gov and enter “depositing and reporting employment taxes” in the search box.

    Thanks for joining us for this workshop.

    Best wishes on your business.