If you have employees, after each quarter, you will have to file your Form 941. Under normal circumstances, it can be difficult to fill out accurately. Because it is 2020, and there have been several economic packages aimed at injecting life into the economy despite the shutdown.
Though these changes came in the forms of stimulus checks, sick and family leave wages, and they allowed businesses to hold onto some of the money they normally would have paid to the government in the form of taxes, Social Security, and Medicare, they still need to be accounted for on your taxes.
A good rule of thumb is that if you have employees, you should expect to file a Form 941. Because the deadline to file for the second quarter is July 31, let’s go over how to complete your Form 941 and how to avoid common pitfalls.
Remind Me, Please…What is a Form 941?
Form 941 is the Employer’s Quarterly Federal Tax Return. Every quarter, employers are required to report their federal income and FICA taxes. FICA includes Social Security and Medicare.
Your employees pay into both Social Security and Medicare because you withhold this money from their paychecks. And on your Form 941, you account for the money you withheld on their behalf.
Secondly, you—as an employer—are required to pay federal income tax as well as Social Security and Medicare. On Form 941, you will also account for your contributions.
Does Every Employer File a 941?
The answer here is that most do, but not everyone does. Let’s go over a few exceptions. If you fall into one of these categories, you can stop focusing on a form you don’t have to submit.
If you have already filed your final return, there is no need for you to do a Form 941. Seasonal employers will also not have to either.
Maybe you employ a nanny or a housekeeper. Though you are technically an employer, this form does not pertain to you. This extends to farm employees too. If you are in this position, file a Form 943.
Lastly, if your Social Security and Medicare liabilities are very small (less and $1000 annually) then you will be told by the IRS to file a Form 944.
So How Do I Complete a Form 941?
The first step to being able to complete this form starts long before the form is due. It begins on the first day of the quarter. Without the right information, you will not be able to fill out this form.
You will need your business information like your address and your Employer Identification Number (EIN).
Beyond the basic information, you will need to know how many employees you paid and how much you paid them. On top of that, you will need to know how much of their income went towards Social Security and Medicare (FICA). This is going to be the total amount of your withholdings.
The above number is going to be the total amount of tax deposits you made for the quarter already. The basic idea is that you withhold the right amount to account for the taxes owed at the end of the quarter.
As we mentioned at the beginning of this article, 2020 brought about a lot of tax changes and tax credits stemming from the COVID-19 pandemic. On your Form 941, you will have to document any wages that were associated with these tax credits.
Specifically, the government allowed you to defer your contributions to Social Security and Medicare. They wanted small businesses to have more money on hand now to increase the likelihood of them being in business following the pandemic.
Whatever taxes you deferred, you annotate them on your Form 941. You won’t have to pay them immediately, but you will have to cite how much you owe in the future.
Due to COVID-19, the government pre-planned for you to have employees out for additional sick time. They also figured that employees would have to stay home and care for people in their families who were sick.
With your Form 941, you will need all the information on paid sick and family leave wages.
The easiest way to fill out Form 941 is by having all the information ahead of time. No set of instructions can get you through this process without you having the right documents.
Stay ahead of your documentation and organization. Use PayWow for your payroll and never worry about not being able to reference the right information when completing your Form 941.