Sec 8: Depositing and Reporting Withheld Taxes Flashcards
How to apply for an EIN
FormSS- 4, Application for Employer Identification Number
Monthly or semiweekly depositor status
The determination is based on the employer’s total liability for federal income, social security, and Medicare taxes during a “lookback period” and generally lasts for an entire calendar
year. The lookback period is the 12-month period ending the preceding June 30.
Example 1: For calendar year 2024, the Form 941 lookback period is July 1, 2022–June 30, 2023. For calendar year 2025, the lookback period is July 1, 2023–June 30, 2024.
Monthly and SM Depositor
If an employer’s four quarterly Forms 941 filed for the lookback period show a total federal income, social security, and Medicare tax liability of $50,000 or less. If the total liability exceeds $50,000 the ER is SM
Different rules for very small employers
Different rules for very small employers. Employers with a total annual withheld federal income tax, social security tax, and Medicare tax liability of $1,000 or less may file Form 944, Employer’s Annual Federal Tax Return
Requirements for monthly depositors
must deposit their accumulated tax liability for each calendar month by the 15th of the following month
Requirements for semiweekly depositors
must deposit employment taxes for wages paid on
Wednesday, Thursday, and Friday by the following Wednesday. Employment taxes for wages paid on Saturday, Sunday, Monday, and Tuesday must be deposited by the following Friday
One Day Deposit Rule
f an employer’s accumulated employment tax liability reaches $100,000 on any day during a monthly or semiweekly deposit period, the taxes must be deposited by the close of the next business day
Impact of one‑ day rule on monthly depositors
If a monthly depositor accumulates at least $100,000 in tax liability
on any day during a month, it not only must deposit the liability by the next day, but it also becomes a semiweekly depositor for the remainder of the current calendar year and the entire next calendar year
Penalties for failure to deposit on time
- 2% of the undeposited amount if it is deposited within 5 days of the due date;
- 5% of the undeposited amount if it is deposited within 6–15 days of the due date;
- 10% of the undeposited amount if it is deposited more than 15 days after the due date (also applies to amounts paid to the IRS within 10 days after receipt of the first IRS delinquency notice
or not made electronically); or - 15% of the undeposited amount if it is not paid within 10 days after the employer receives its first IRS delinquency notice or on the same day a notice and demand for payment is received.
100% penalty for not withholding and paying taxes
Individuals who are responsible for collecting, accounting for, and paying over withheld income and employment taxes and who willfully fail to do so are subject to an additional penalty equal to the total amount of the taxes owed. This is known as the “Trust Fund Recovery Penalty” or the “100% penalty.”
Shortfall rule
Under the “shortfall” rule, employers are not penalized for depositing a small amount less than the entire amount of their deposit obligation. An employer satisfies its deposit obligation if the shortfall is no more than the greater of $100 or 2% of the entire amount due and the shortfall is made up by the appropriate
“make‑up” date
Who Must File Form941
- Seasonal employers that regularly do not pay wages in certain quarters (they must check the box on Line 18 on Form 941 for each quarter they file the form)
- Businesses that withhold federal income tax from only nonpayroll items (e.g., backup withholding, pensions, annuities, gambling winnings) and do not withhold any taxes from employee compensation
- Employers that report only withheld taxes on domestic workers
- Employers that report only wages for employees in U.S. territories and possessions outside the continental U.S., plus Puerto Rico
- Agricultural employers, unless they also have employees who are not agricultural employees
- Employers that have an annual employment tax liability of no more than $1,000 and file Form 944
Employers going out of business
- Check the box on Line17 when completing its last Form941 indicating it will not file any returns in the future and enter the last date on which wages were paid
- Attach a statement showing the address where the employer’s records will be kept, the name of the person keeping the records, and, if the business has been sold or transferred, the name and address of the new owner and the date of the sale or transfer
Other Federal Forms
Form 944 - Small ER’s Annual liability of $1k or less
Form 1040 Sched H - Domestic ER’s SS Med cap at $2700
Form 943 - Annual Agricultural
Form 945 - Nonpayroll pensions, gambling, annuities
Form 941M - Monthly Reporting delinquent ER’s
Adjustments, Corrections, and Refunds
Employers identify and correct errors in previously filed Forms 941 using Form 941-X. If overpayments or deposit errors occur, employers may file Form 843 to request refunds or abatements.
Ensure detailed justifications when filing these forms.
Late filing of employment tax returns.
The amount is 5% of the amount of tax required to be shown on the
return (reduced by any timely deposits and credits) for each month or fraction of a month that the return is late, up to a maximum of 25% (15% per month up to a maximum of 75% of the unpaid tax if the late filing is fraudulent
Failure to pay employment taxes
- 0.5% of any unpaid tax shown on the return (after accounting for credits) for each month or fraction of a month that the payment is late (based on the due date of the return without regard to
extensions of time for filing), up to a maximum of 25% - An additional 0.5% per month of any unpaid tax that is not shown on the return but for which the IRS has issued a notice and demand, if the tax is not paid within 21 calendar days of the notice
and demand (10 business days if the amount is at least $100,000) up to a maximum of 25% (beginning at the end of the 21- day or 10-day period)
Failure to Provide Information Statements to Employees
The general penalties for 2024 forms required to be filed in 2025 are:
* $60 per return if the failure to file or provide correct information is corrected within 30 days after the due date, with a maximum penalty of $664,500 a year ($232,500 for small businesses)
* $130 per return if the failure to file or provide correct information is corrected more than 30 days after the due date but by August 1 of the same year the return is due, with a maximum penalty of $1,993,500 a year ($664,500 for small businesses)
* $330 per return if the failure to file or provide correct information is not corrected by August1,with a maximum penalty of $3,987,000 ($1,329,000 for small businesses)
