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
Use the following steps to complete the form:
Line 1. Enter the number of employees
on the payroll during the pay period that includes March 12. This figure should
not include household employees or anyone who received no pay during the
Line 2. Enter the total amount of all
wages paid, which includes tips and taxable fringe benefits, but not
supplemental unemployment compensation benefits and contributions to employee
pension plans that are not itemized as employee wages.
Line 3. Enter the total amount of
income taxes withheld on wages, tips, taxable fringe benefits, and supplemental
unemployment compensation benefits.
Line 4. If there were errors in the
reported amount of income taxes withheld from previous quarters of the same
calendar year, enter the adjustments on this line. Adjustments to reported
quarters in previous years are not allowed. The amount of any adjustment must
also be included on line 17, and itemized separately on Form 941c, "Supporting
Statement to Correct Information."
Line 5. Net line 4 against line 3, and
enter the merged amount on this line.
Line 6. Enter the amount of all wages
paid on line 6a, except tips that are subject to Social Security taxes. For the
year 2002, this would be all wages up to $84,900. Multiply this figure by the
Social Security tax rate of 12.4 percent, and enter the tax on line 6b. Enter
the same information for tip wages on line 6c, and the tax due on line 6d.
Line 7. Enter the amount of all wages
and tips subject to Medicare taxes; there is no upper wage limitation on the
amount subject to this tax. Then multiply the result by the Medicare tax rate of
2.9 percent and enter the tax due on line 7b.
Line 8. Summarize all taxes due from
lines 6 and 7.
Line 9. Enter any adjustments to the
reported amounts of Social Security and Medicare taxes previously listed on
lines 6 and 7. These adjustments can include the uncollected employee share of
tip taxes, adjustments for the employee share of Social Security and Medicare
taxes on group term life insurance premiums paid to former employees, and
adjustments for the employee share of taxes withheld by an independent provider
of sick pay. An accompanying statement should itemize these adjustments.
Line 10. Net lines 8 and 9 to arrive
at the adjusted total of Social Security and Medicare taxes.
Line 11. Add lines 5 and 10 to arrive
at the total amount of taxes withheld.
Line 12. Enter the total amount of any
earned income credit payments made to employees. If the amount of these credit
payments exceeds the total taxes listed on line 11, you can either claim a
refund or let the credit forward into the next quarter.
Line 13. Subtract line 12 from line 11
and enter it here.
Line 14. Enter the total deposits made
during the quarter, as well as any overpayment remaining from a preceding
Line 15. Subtract the deposit total on
line 14 from the tax due on line 13 to arrive at the balance due.
Line 16. If there is a credit balance
on line 15, enter it here and then check your choice of rolling it forward to
the next quarterly return or receiving a refund.
Line 17. Enter the total tax liability
for each month of the reporting quarter, as well as the total amount for the
The form should be signed by a business owner, corporate officer,
partner, or fiduciary, depending on the type of business entity filing the
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.
Filing Locationif No
Filing Location ifIncludes
For Employers Located In
Cincinnati, OH 45999-0005
P.O. Box 105703 Atlanta, GA 30348-5703
Connecticut, Delaware, District of Columbia, Illinois,
Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New
Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South
Carolina, Vermont, Virginia, West Virginia, Wisconsin
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.
Exhibit 7.8: Form 941-V
the Real World: The Case of the Missing States
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
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.