By Christopher Wood
During a March 20 presentation by the IRS on employment tax at the American Payroll Association’s (APA) Capital Summit in Washington D.C., Daniel Lauer, IRS Director of the Small Business/Self-Employed Examination—Specialty, said that the Service is considering decommissioning the annual federal employment tax return used by small employers “as we speak.”
Annual employment tax return.
Form 944 (Employer’s Annual Federal Tax Return) is used by employers with an annual employment tax liability of $1,000 or less. The IRS may notify an employer to file Form 944 instead of Form 941 or an employer may request to file this form because its liability is below the threshold.
Who may currently file Form 944.
Household employers, agricultural employers, those businesses that were notified by the IRS not to file Form 941, and employers that were not notified to file Form 944, are not allowed to file this annual return. If an employer is qualified to file Form 944 but its employment tax liability ends up exceeding $1,000 at some point, the employer continues to file this form until the IRS notifies the employer otherwise.
Not many filing Form 944.
Lauer said that Form 944 “has an extremely low filing participation.” He also explained that it can cause challenges and confusion when employers file Form 944 on a quarterly basis or do not understand which form to use and when it should be filed. “We get lots of rejects, a lot of taxpayer correspondence associated with that, [and] a lot of problem solving challenges.” Lauer concluded by stating the Form 944 “is being considered for decommissioning as we speak.”
Similar reasoning led to elimination of advanced EITC form.
Before 2011, employers with qualified children who were eligible for the earned income tax credit (ETIC) were able to get an advanced payment of this credit by submitting a Form W‑5 (Earned Income Credit Advance Payment Certificate) to their employer. However, federal law repealed this option, beginning January 1, 2011. Some of the reasoning for eliminating this option and form was due to very low participation.
Other IRS returns being retired.
The IRS is already planning to retire Form 941-SS (Employer’s QUARTERLY Federal Tax Return—American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands) and Form 941-PR (Planilla para la Declaración Federal TRIMESTRAL del Patrono) after the fourth quarter of 2023. Instead, employers in the U.S. territories will file Form 941 or new Form 941 (SP) (Declaración del Impuesto Federal TRIMESTRAL del Empleador).
Small employers may have to go back to quarterly reporting.
Should the IRS retire Form 944, those employers that filed annually with a January 31 due date would need to file their employment tax returns on a quarterly basis, with the due dates on the last day of the month after the end of each quarter.
This article originally appeared in Checkpoint’s Payroll Update.
For further information regarding Form 944, see Checkpoint’s Federal Tax Coordinator ¶ S-2603.
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