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What is IRS Form 941?

Christopher Wood, CPP  

Christopher Wood, CPP  

Highlight: The IRS Form 941 is one of the most important payroll-related tax returns used by businesses to report employment taxes, including federal income tax withholding, Social Security tax, Medicare tax, and Additional Medicare tax.

What is the IRS Form 941?

On January 1, 1950, a new plan took effect to collect taxes due under the Federal Insurance Contributions Act (FICA) and under the federal income tax withholding provisions of the Internal Revenue Code (IRC). The plan consolidated the two tax collections and used a new form to do so. Up until that point, Form SS-LA was used for Social Security Administration (SSA) tax reporting, and Form W-1 was used for IRS federal income tax reporting. IRS Form 941, Employer’s Quarterly Tax Return, replaced these forms more than 70 years ago and has been used by businesses to report federal income tax withholding, Social Security tax, Medicare tax, and Additional Medicare tax. The form has been used to report other items as well – most recently, the coronavirus (COVID-19) pandemic tax credits.

When do businesses need to file Form 941?

Form 941 is a tax report due on a quarterly basis. The typical quarterly due date for the form is 30 days following the end of each calendar quarter as follows: April 30, July 31, October 31, and January 31. However, if the due date falls on a weekend or a federal holiday, the due date is the next business day. The IRS will treat a filed Form 941 as timely if mailed and postmarked by the U.S. Postal Service on or before the due date. Businesses can also file employment taxes electronically and pay through the Electronic Federal Tax Payment System (EFTPS).

What taxes are reported on Form 941?

Form 941 reports employment taxes. Federal law requires employers to withhold certain taxes from the pay of employees. As mentioned, this includes federal income tax, Social Security tax, Medicare tax, and Additional Medicare tax (on wages in excess of $200,000). Employers are also required to pay any liability for the employer portion of Social Security and Medicare tax. For these two taxes, there is an employer and employee portion. For Social Security tax, the rate is 6.2% for each up to the annual taxable wage base ($147,000 in 2022). For Medicare tax, the rate is 1.45% for each.

Who needs to file Form 941?

Not all employers must file a Form 941. If an employer paid wages subject to federal income tax withholding, Social Security, and Medicare taxes, it’s almost certain the employer must file a Form 941. An exception to this would be if the employer received a notification to file Form 944, Employer’s Annual Federal Tax Return. This form is typically used for small employers with a minimal tax liability. Seasonal employers do not have to file a Form 941 for the quarters in which they have no tax liability. Employers of household employees usually don’t file a Form 941, and employers of farm employees file Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, instead. The IRS notes that if none of these exceptions apply, and the business has not filed a final return, it must file a Form 941 each quarter even if the employer didn’t pay wages during the quarter.

Where should you file Form 941?

Businesses are encouraged to file Form 941 electronically. However, if filing by mail, the address will vary based on where the employer is located. A multi-state employer will want to pay close attention to these addresses to avoid sending a form to the wrong location. The address will also change if the employer is sending Form 941 with or without a payment. Refer to the IRS website’s Form 941 instructions for a chart to help you determine where to file.

When are employment tax deposits due?

Each quarter, employers make employment tax deposits. These deposits are for federal income tax, Social Security, and Medicare taxes (also Additional Medicare tax). The frequency of making employment tax deposits can be semiweekly, monthly, or quarterly. It is based on each employer’s lookback period. If an employer reported more than $50,000 in taxes during the lookback period, the employer is a semiweekly depositor. There is also the next-day deposit rule, which applies to employers that accumulate federal taxes of $100,000 or more on any day during a deposit period.

If an employer was a monthly or quarter depositor and had to make such a deposit, that employer’s deposit schedule changes to semiweekly for at least the rest of the calendar year and for the following calendar year. The paper Form 941 includes a Form 941-V, Payment Voucher. This form is used if an employer is making a payment with Form 941, which is due quarterly. To avoid a penalty, payments should be made with Form 941 only if: (1) the total taxes for either the current or preceding quarter are less than $2,500 (and didn’t incur a $100,000 next-day deposit obligation) or (2) the employer is a monthly depositor making a payment in accordance with the Accuracy of Deposits Rule. Otherwise, employer must make deposits by electronic funds transfer (EFT). This can be done for free through the EFTPS.

How often does the IRS update Form 941?

Typically, Form 941 is updated by the IRS annually. However, during the coronavirus (COVID-19) pandemic, the IRS revised Form 941 multiple times. This happened first in 2020 when the Families First Coronavirus Relief Act (FFCRA) and Coronavirus Aid, Relief, and Economic Security (CARES) Act were signed into law that March. These bills added temporary COVID-19 tax and other relief. The FFCRA added paid leave for COVID-19 related reasons and an employer credit related to this paid leave. The CARES Act added the Employee Retention Credit (ERC), another employer tax credit for certain businesses affected by COVID-19, as well as other payroll-related items. Two subsequent bills, the Consolidated Appropriations Act (CAA) of 2021 and the American Rescue Plan Act (ARPA), amended and extended these and other provisions. The Infrastructure Investment and Jobs Act ended the ERC for most employers after September 30, 2021, instead of after December 31, 2021. These changes resulted in multiple revisions of Form 941 to add line items for reporting purposes and subsequently remove them after some provisions expired. For example, the deferral of Social Security tax payments provision under the CARES Act is no longer a line item on the draft 2022 Form 941 because that provision expired.

The IRS currently has a draft version of the 2022 Form 941 and instructions available on its website. The 2022 final Form 941 should be issued soon.

What line items are on Form 941?

The first few lines of Form 941 require employers to input the following: the number of employees who received wages, tips, or other compensation; total wages, tips, and other compensation; and the federal income tax withheld. There are specific line items to report qualified sick and family leave wages and the COBRA premium credit, which was a provision of ARPA. The current 2022 draft version of Form 941 has a few line items that say they are reserved for future use. The 2022 draft Form 941 has a total of 28 lines. For comparison, the 2019 Form 941 has a total of 18 lines. As a result of the COVID-19 pandemic, the IRS has added several lines and adjusted the Form 941 format.

The draft 2022 Form 941 instructions explain that the COVID-19 related credit for qualified sick and family leave wages is limited to leave taken after March 31, 2020, and before October 2021. The instructions also note that the ERC has expired (September 30, 2021) for most employers. If the employer is a recovery startup business, the expiration date is December 31, 2021. In addition, the instructions explain that the credit for COBRA premium assistance payments ended after September 30, 2021. Employers can still pay qualified sick and family leave wages in 2022 for leave taken after March 31, 2020, and October 1, 2021, or provide COBRA premium assistance payments in the first quarter of 2022; however, employers can no longer request an advance payment of any credit on Form 7200.

Is deposit schedule relief available?

The 2022 draft Form 941 instructions explain that if an employer became a semiweekly schedule depositor for 2022 under the $100,000 next-day deposit rule solely as a result of the relief provided in IRS Notice 2021-65, regarding the early termination of the ERC for the fourth quarter of 2021, the employer may be converted back to a monthly depositor by contacting the IRS. The IRS says that such an employer can continue with the monthly deposit schedule, but the employer may receive a system-generated failure to deposit (FTD) penalty notice after filing Form 941 for the first quarter of 2022. In such a case, the employer should contact the IRS at the phone number on the FTD penalty notice to request abatement of the penalty and be converted back to a monthly depositor.

Always use the current Form 941

The IRS warns that employers should not use an earlier revision of Form 941 to report taxes for the 2022 tax year. Employers must use the March 2022 Form 941 version only to report taxes for the quarter ending March 31, 2022.

More Form 941 revisions are possible

The IRS explains that if there are further changes to the law which require additional changes to Form 941, the form and its instructions may be revised once again. Currently, there is a bill in Congress calling for an extension to the ERC. If signed into law, that would certainly warrant another revision of Form 941.

Stay up to date on Form 941 changes with a payroll resource guide

This blogpost only scratched the surface on IRS Form 941. There’s even more to know about the form, reporting schedules, corrections, and other forms and taxes that must reconcile with Form 941. Investing in a payroll resource guide can be an excellent way to keep up to date with all the changes and adjustments.

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