Small Business Accounting:
Step by Step: Filling Out Form 941
Each quarter (15th of January, April, June and September) employers must file Form 941 with the IRS outlining the withheld income taxes including all tips, wages, sick pays, unemployment benefits, etc plus social security and Medicare taxes. This article will help you in filling out the form 941, which many people have compared to learning a foreign language. Agricultural employers need to file Form 943 to report withheld income taxes, social security and Medicare taxes. Keep in mind you do not need to file multiple Form 941s for your clients for multiple divisions and locations. Just file one form. Following are step-by-step instructions for filing out form 941:
- On top of the form there is a small box for seasonal workers. Check this if only your client hires employees for a season like summer or winter. This way the IRS knows not to expect four Form 941s from him or her.
- On line 1 you must list the number of employees your client has
- On line 2 you put the total amount of wages and tips that your client has paid to his/her employees. This doesnt mean the amount of withheld income taxes, social security, and Medicare taxes. This also includes any kind of other compensations that your client has given to their employees including money for lunches, parking spaces, massages, and money paid to day care centers and dog kennels. This also includes any sick pay that your client or their insurance courier paid to their employees.
- On line 3 you put all the income tax that your client has withheld from their employees. This includes tax collected on the wages that your client has paid them, on the tips, money for lunches, parking spaces, massages, money paid to day care centers and dog kennels, etc.
- On line 4 is where your client comes clean if they have made mistakes on other Form 941s for the preceding quarters. For any adjustments that your client needs to make for the withheld income taxes, this is where they do it. Only report adjustments for the current calendar year, meaning for the quarters in this year not the previous one. Dont forget to take this into account on line 17, because your clients tax liability has either increased or decreased.
- On line 5 you put either the total amount of line 4 and 3, if your client had additional withheld income tax to report, or minus line 4 and 3, if they had reported extra-withheld income tax previously and needed to reduce the amount now. Whatever the total, report it here.
- Line 6 has four parts to it:
- On line 6a, all wages that are subject to the social security taxes are reported here. This doesnt include the tips. Examples are wages paid to your clients employees, sick pay, money for lunches, parking spaces, massages, and money paid to day care centers and dog kennels. The limit for the year 2000 is $76,200. Anything beyond this is not taxable.
- On line 6b, you put the tax that you should compute using a calculator. To do this, multiply the number from line 6a by .124. For example, if the wages total $10,269 and you multiply that by .124 (12.4%), you get $127.33. Thats what goes here.
- On line 6c, you put the tips that your clients employees have reported for this quarter that are subject to social security taxes. These are the tips that are reported to your client by their employees. Tips that your client has allocated to them need to be reported separately, not here.
- On line 6d, your client calculates the tips made by their employees and reported to them by multiplying by .124 (12.4%). The amount gets entered here. Always try to double-check your work. Small mistakes can sometimes ring the bell at the IRS.
- On line 7a, you take the amounts from line 6a and 6c and add them up. The total goes here.
- On line 7b, you take the number you got for line 7a and multiply that by .029 (2.9%). The amount you get is entered here.
- On line 8, you add all the amounts from line 6b, 6d, and 7b. You enter the total here. If the wages and tips were not subject to the social security taxes and/or Medicare taxes then check the small box placed there.
- Line 9 gets a little complicated. Even though its very similar to line 4, here you are trying to adjust the social security and Medicare taxes for this quarter and the previous ones. The difference here is that you can also adjust the taxes for prior years. Adjustments are for the uncollected employee share of social security taxes and Medicare taxes on tips, the employee share of social security and Medicare taxes on group-term life insurance premiums paid for former employees, the employee share of social security and Medicare taxes withheld by a third-party sick pay payer, Fractions of cents involved. Sick pay adjustments and fraction of cents go into their allocated spaces. All the other adjustments go into the other. This includes all prior period adjustments for prior quarters and years. Once again you have to take this into account for line 17 or schedule B. You need to explain all prior period adjustments that you report on line 9 of Form 941 on Form 941c. This is basically a statement supporting line 9. According to the IRS, you also need to file Form W-2c (Corrected Wage and Tax Statement) and Form W-3c, (Transmittal of Corrected Wage and Tax Statement).
- On line 10, you add line 8 and 9 if the number in line 9 is a positive one meaning you have increased your clients tax liability or you subtract line 8 and 9 if number in line 9 is negative.
- Line 11 is simple math where you add line 5 and line 10 and record the number.
- On line 12, you enter the advance earned income credit amount provided to your clients employees. Employees only become eligible for this when they correctly fill out W-5 and give it your client. If this amount exceeds line 11 then you can either claim a refund for this quarter or let it rollover to the next. But you do need to provide the IRS with a written statement explaining the circumstances under which the amount exceeded the amount in line 11.
- Line 13 is the amount that you get after you subtract line 12 from line 11. If this is over $1000, then it should equal line 17 on schedule B.
- Line 14 is the amount that includes all the deposits that your client has made in this quarter plus overpayment applied from prior quarters.
- On line 15, you need to subtract line 14 from line 13. If you get a zero it means line 13 was more than a $1000 and your client made all the deposits on time for their taxes. Your client would only have a balance due here if their tax liability for this quarter was under $1000 on line 13. If the balance due is one dollar then they dont owe IRS anything. Also if your client pay their taxes with this form, be ready to get hit with penalties. Mostly late fees and fines.
- Line 16 is where you have to decide if you want your clients overpayment (whatever is left over from after you subtract line 14 from line 13) to be refunded or rolled over to the next quarter. Also enter this overpayment on the appropriate line and dont forget to check a box.
- Line 17 shouldnt be filled if the amount on line 13 is less than $1000. If its over then the other requirement is that your client has to be a monthly schedule depositor for the quarter. If your client is a semiweekly schedule depositor then report your clients tax liability on schedule B. The taxes reported for a look back period (four consecutive quarters ending on June 30th of the previous year) should be under or equal to $50,000 for a monthly schedule depositor. Also you should never enter a negative amount in any of the four columns, instead enter a zero. This occurs sometimes from correcting an over reported liability in a prior period. If excess negative adjustments are carried forward to the next quarter dont show them on line 4 and 9.
Well you are done and good luck with sending this in and remember to use the preaddressed form for this. Always go over your calculations and dont forget to sign the form!