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Employer's Quarterly Federal Tax Return


Employer's Quarterly Federal Tax Return

Employer's Quarterly Federal Tax Return

Form 941 must be filed by employers on a quarterly basis with the federal government. This form identifies the amount of all wages on which taxes were withheld, the amount of taxes withheld, and any adjustments to withheld taxes from previous reporting periods. If there is a shortfall between the amount of withheld taxes on this form and the amount of taxes actually withheld and deposited with the government during the quarter, then the difference must accompany this form when it is submitted. Taxes to be reported on this form include income taxes withheld from wages, including tips, supplementary unemployment compensation benefits, and third-party payments of sick pay, plus Social Security and Medicare taxes. An example of the form is shown in 

Use the following steps to complete the form:

The form should be signed by a business owner, corporate officer, partner, or fiduciary, depending on the type of business entity filing the report.

If a company operates only seasonally, it can avoid filling out the report for quarters when there is no activity by checking the "Seasonal Employers" box above line 1 on the form. And if a company is going out of business, be sure to check the "Final Return" box above line 1 of the form.

The form is due one month after each calendar quarter and must be filed at one of three IRS locations, depending on the location of the filing company. Exhibit 7.7 shows the correct filing location for each state of residence.

If an employer is making a payment with Form 941, it must use the Form 941-V Payment Voucher to accompany the payment. This form is used to identify the taxpayer, as well as the quarter to which the deposit is to be credited, and the amount of the payment. This form is available on the Internal Revenue Service's web site in Adobe Acrobat format. An example is shown in Exhibit 7.8.

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Exhibit 7.8: Form 941-V Payment Voucher
In the Real World: The Case of the Missing States
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A Colorado company purchased a Maryland-based consulting company that had conducted operations in a variety of states during the past decade. The acquiree had processed payroll using an internal software system and had manually remitted tax withholdings to many states. Shortly after the acquisition, the acquirer began to receive a number of unpaid withholding notices from various states, all claiming that taxes had not been paid for years, along with substantial penalties and interest charges. The underlying problem was that the acquiree had done business in so many states that its accounting staff had not kept up with making withholding filings with all required governments. The acquirer found itself in the unpleasant position of being liable for all of these payments. Furthermore, it did not know when the next notice to pay might arrive in the mail. Since the acquiree's tax remittance records were not complete, there was no way to research the extent of the problem.

Subsequently, the acquirer's finance team decided to include in its acquisition review documentation a warning flag that this problem could arise whenever a potential acquiree's payroll operations were not conducted through a payroll supplier (which would have made the filings on behalf of the company); the team also noted that future acquisition deals should make the owner of an acquiree liable for any unpaid payroll tax liabilities for several years following the closure of the acquisition transaction.

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