About Form 941: Employer’s Quarterly Federal Tax Return
The IRS Form 941 was initiated on January 1, 1950, as part of a plan to collect taxes due under both the Federal Insurance Contributions Act (FICA) and the federal income tax withholding provisions of the Internal Revenue Code (IRC). Known as the Employer’s Quarterly Federal Tax Return, Form 941 replaced Form SS-LA, which was previously used for Social Security Administration (SSA) tax reporting, and Form W-1, which was used for IRS federal income tax reporting. Businesses use Form 941 to report federal income tax withholding, Social Security tax, Medicare tax, Additional Medicare tax, and more recently, the coronavirus (COVID-19) pandemic tax credits.
IRS Form 941 is updated annually, but during the COVID-19 pandemic, the IRS revised the form multiple times to account for bills which were signed into law, first in March of 2020 for temporary COVID-19 tax and other relief; the CARES Act, which added the Employee Retention Credit (ERC), another employer tax credit for certain businesses affected by COVID-19, and other payroll-related items, and FFCRA – Families First Coronavirus Relief Act (paid leave), then in 2021, two other bills were signed into law; the Consolidated Appropriations Act (CAA) and the American Rescue Plan Act (ARPA) amended and extended the CARES and FFCRA acts and other provisions. Several changes to provisions resulted in multiple revisions of Form 941 to add line items for reporting purposes and were subsequently removed after some provisions expired. The Infrastructure Investment and Jobs Act ended the ERC for most employers after September 30, 2021.
Form 941 employment tax reports are due on a quarterly basis, typically 30 days following the end of each calendar quarter on these specific dates: April 30, July 31, October 31, January 31. If the due date falls on a weekend or a federal holiday, the due date is the next business day. The IRS will honor the form submission if it is postmarked on or before the due date. Businesses also have the option of filing employment taxes electronically and pay through the Electronic Federal Tax Payment System (EFTPS).
Federal law requires employers to withhold certain taxes from employees’ paychecks, including federal income tax, Social Security tax, Medicare tax, and Additional Medicare tax on wages exceeding $200,000. Additionally, employers are 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. If an employer paid wages subject to federal income tax withholding, Social Security, and Medicare taxes, the employer must file a Form 941.
There are some exceptions to the federal law requiring employers to file Form 941. These include small employers with minimal tax liability, employers of household employees, and seasonal employers who have no tax liability for certain quarters also do not have to file. There are other forms which may be required: Form 943 (Employer’s Annual Federal Tax Return for Agricultural Employees), or Form 944 (Employer’s Annual Federal Tax Return).
The IRS encourages businesses to file Form 941 electronically, however, they can still file by mail. Multi-state employers must pay close attention to the mailing address to avoid delays if the form is sent to the wrong address; the mailing address also depends on whether the employer is sending a Form 941 with or without a payment. The IRS provides instructions for filing Form 941 to give employers background information on the form, help them determine when and where to file Form 941, and how to properly complete it line by line.
Employers must make employment tax deposits at a frequency that is based on each employer’s lookback period - semiweekly, monthly, or quarterly. If an employer reported more than $50,000 in taxes during the lookback period, the employer is considered 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 quarterly depositor and reported a change in taxes, then their deposit schedule would change to semiweekly for the rest of the current calendar year and the following calendar year.
The physical Form 941 includes a Form 941-V, Payment Voucher which is for an employer is making a payment with Form 941, due quarterly. Payments should be made with Form 941 only if 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 the employer is a monthly depositor making a payment in accordance with the Accuracy of Deposits Rule. Otherwise, deposits must be made by electronic funds transfer (EFT), which is free through the EFTPS.
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 some 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.
Draft 2022 Form 941 instructions clarify 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, 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.
Per 2022 draft Form 941 instructions, if an employer became a semiweekly schedule depositor for 2022 under the $100,000 next-day deposit rule solely because 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 the 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 this case, the employer should contact the IRS to request abatement of the penalty and be converted back to a monthly depositor.
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 to report taxes for the quarter ending March 31, 2022. If there are further changes to the law which require additional changes to Form 941, the form and its instructions may be revised again. Currently, there is a bill in Congress calling for an extension to the ERC. If signed into law, that would initiate another revision of Form 941.
