What is Form 941? This is a common question many small business owners will ask tax attorneys. Form 941, is a federal tax form titled, Employers Quarterly Federal Tax Return. This form is filed quarterly by an employer to report wages paid and wages withheld.
– 1st Quarter covers January through March and is due April 30st
– 2nd Quarter covers April through June and is due July 31st
– 3rd Quarter covers July through September and is due October 31st
– 4th Quarter covers October through December and is due January 31st (following year)
On the form you will state: the number of employees, total wages paid, federal income tax withheld, social security tax withheld and Medicare tax withheld. Additionally, the employer will stated the Federal Tax Deposits that have been made during the quarter and thus the remaining balance if any when the tax return is filed. An employer will have depositing requirements that are dictated by the tax liability, and a look back period. Generally, the employer will be required to make the federal tax deposit each time payroll is paid, on a monthly basis or payment can be made with the return. If the employer is a monthly depositor the deposit is due on the 15th of the following. For example, a monthly depositor would need to make the deposit for October on or before the 15th of November to be in compliance.
The penalties for failing to timely make the federal tax deposits and/or timely filing the 941 tax return can be quite severe. The failure to file penalty is 5% per month or a portion of a month that the tax return is late, and can be assessed up to 25%. The failure to timely deposit penalty is generally 10%, but may depend upon how late the federal tax deposit was made.
A 941 tax debt to the Internal Revenue Service is a very serious matter. Our Denver tax attorneys have worked with many clients who paid the net payroll to their employees but did not pay the taxes over to the Internal Revenue Service. The reason why a 941 tax liability to the IRS can be so severe is that in addition to the business owing the tax, the individual business owners can be responsible for the trust fund portion of the 941 debt through the Trust Fund Recovery Penalty. The Trust Fund Recovery Penalty is a “penalty” whereby the taxes withheld from the employee’s paycheck can be personally assessed to the willful and responsible parties, which is generally the business owners. The trust fund portion is the social security and Medicare tax, and federal income tax that was withheld from the employee’s pay check. The business owners or other responsible parties can be held personally liable for this portion of the tax debt and the IRS can collect from the both the business and the individual parties at the same time.
You can calculate the total trust fund amount from a quarter by reviewing the 941 tax return. If you add the total federal income tax withheld to 50% of the social security and Medicare tax, this amount is the total trust fund for such quarter. Of course, if deposits were made, the trust fund actually due or that an individual may be exposed to, would be less.
Due to the severity of the 941 taxes, our Denver tax lawyer recommends that all business owners understand the process of how these taxes are paid and when the deposits and tax returns are due. The Internal Revenue Service also has instructions for the 941 tax return, which may be of help.
Contact The McGuire Law Firm to speak with a Denver tax lawyer and schedule your free consultation!