The biggest IRS Form 941 development for 2014 is how same-sex benefits are treated. Until recently, benefits paid to employees for benefits of a same-sex spouse were taxed. FICA taxes were paid (by the employer), and income tax was paid (by the employee) as well.
But in 2013 the Supreme Court made a decision that changed all that. A group of Congressmen had proposed the Defense of Marriage Act (DOMA), which strove to bar the federal government from recognizing same-sex marriage.
In what ways does the federal government recognize marriage at all? Well for one, it doesn’t tax benefits paid to spouses of employees. So, an employer who pays for part of medical insurance for employees and spouses does not take out FICA tax on those benefits when filling out Form 941.
However, not so for same-sex couples. FICA tax was paid by the employer on these benefits and income tax was paid by the spouse until the Supreme Court ruling.
So, in 2013 The Defense of Marriage Act was struck down. Not only was it struck down but the decision was applied retroactively. That means that any FICA tax or income tax paid on same-sex spousal benefits can now be refunded.
How to Get a Refund for FICA Tax Paid for Same-Sex Benefits
To recoup the FICA tax paid on past Form 941s before 2014, employers should file what’s called a protective claim. The real way to recoup the FICA tax paid is to file amended IRS Form 941s. This form is actually called IRS Form 941-x. But there is a time limit on how long you can wait to file for past taxes paid in this situation.
What the protective claim does is to extend this time limit until you can get around to filing your 941-x forms. You’ll have to explain why you can’t file the 941-x forms on time, so plan to put some effort into your protective claim.
It is possible to avoid filling out those paper form 941 each quarter and start e-filing them. The IRS website has a section on electronically filing all sorts of forms, including the 941. This is a good option for companies with lots of employees but for just a few employees it might be more cost effective to do it yourself. That’s because it’s not free.
The IRS has something called the Employment Tax E-File System which is actually a collection of information on third party companies that will help you file your form 941 for 2013. The IRS doesn’t actually have a system in place to handle e-filed form 941s themselves. So what looked like a great idea at first, isn’t actually the best option for everyone. These third party companies are in business- they charge for their services. That’s why it might be worth it if you have lots of employees but otherwise consider it very carefully before you enroll.
However, if you think paying a service to electronically file your 941s for you is worth the expense, it’s not too late to get started for the 2013 forms. Choose a software provider or online site and register, get a PIN etc and you’re on your way.
For the rest of us small businesses, the good old paper Form 941 will still have to do. It’s available for download at the IRS website.
For employers who must make a Federal Deposit (amount due is more than $2,500), take care to make sure you do everything correctly and on time. The IRS 941 Form late fees are no fun. Electronic Payment, whether it’s through your bank or EFTPS or your accountant, must be set up ahead of time. EFTPS requires a login which takes time to get.
Federal Deposit Late Fees
If you somehow mess up the Federal Deposit, you will encounter all kinds of headaches. Here’s a nice list of unpleasant things that can happen to you:
- a 10% penalty will be charged for failure to deposit
- if you pay with your return instead of making a Federal Deposit, you will also pay 10%
- If you are just one day late a 2% penalty applies. This goes for 2-5 days late too.
- 6 to 15 days late and your penalty bumps up to 5%
- 16 or more days late and you get 10% penalty
- And a nice 15% penalty on amounts still unpaid more than 10 days after the date of the first late notice the IRS sends you. This is on top of the late penalties mentioned above.
There are two ways in which employers must pay any amount due on the Employers’ Quarterly Federal Tax Return (RIS form 941). Depending on how much is due, a Federal deposit must be made or payment with the 941 form can be made.
IRS Form 941 Deposit vs. Payment
A Federal Deposit must be made if the amount due is more than $2,500. This means you must set up an electronic transfer from your bank account into an IRS account. If the amount is less than $2,500 then you can pay by check and mail it along with form 941.
How to Pay Amount Due on IRS Form 941
The choices are Federal Deposit or Payment with Return. The cutoff amount that determines which method you pay your 941 tax return is $2,500. If you are making a deposit, then you must use either the EFTPS (Electronic Federal Tax Payment System) or a third party who is authorized to make Federal Tax Deposits. This can be your tax preparer, a payroll service, or your bank.
The Middle Class Tax Relief and Job Creation Act of 2012 was extended to the end of 2012, meaning more money in the pockets of taxpayers. The initial cut, which took effect in 2011, was first extended to the end of February, 2012. Then it was extended again to the end of 2012.
Payroll tax, which is reported on IRS Form 941, is combination of Social Security tax and Medicare tax. The tax cut means the 2% cut in the employees’ portion of the payroll tax will continue for another tax year, keeping more money in the hands of taxpayers.
How will the IRS make up for the decreased tax payments coming into our already sadly depleted Social Security (and Medicare) coffers? They will transfer money from another account, called the General Fund.
Employers who use Circular E (Employers’ Tax Guide) should note that there was an update to the publication after the Payroll Tax Cut was extended. The publication states that employers should withhold 4.2% of employees’ wages and tips for Social Security up to February 29, 2012. Then on any wages and tips paid after March 1, 2012 they should withhold 6.2%. Well now that the Payroll Tax Cut has been extended that amount of withholding should remain at 4.2%.
If you own your own business, one thing to keep in mind if it’s an S-corp is not to forget the IRS 941 form. Actually, any business owner who has employees has to file the IRS 941 four times a year but S-corp owners are especially vulnerable to forgetting because they may have only one employee: themselves.
It’s easy to forget about all the tax forms required by the IRS if you formed your S-corp as a pass-through savings mechanism and you don’t have any employees other than yourself. You don’t think of yourself as an employee of a corporation but rather as a person who owns a business. But get savvy and learn about the IRS 941 form regardless of how many employees you have because it’s a pretty hefty chunk of your income each year.
The money owed on an IRS 941 form would represent 7.65% of wages, so if you made $100,000 you’re looking at thousands of dollars. The penalties for paying or filing late are 2% to 10%. If you make enough to warrant creating an S-Corp to save money on taxes, then you stand to lose lots of money in penalties if you forget to file and pay the IRS 941 form.
If you are an employer then you should know about IRS Form 941. It’s a required form due four times a year and if you fail to file this tax form you may be in for some fines and penalties.
Unless you are paying your employees under the table, which we hope you’re not, the Federal government requires that you take out a chunk of money from each paycheck that goes to your workers, and pay it to the IRS instead. This is called withholding taxes. Withholding covers the following types of Federal taxes:
- social security tax
- Medicare tax
- federal income tax
These are sometimes also called payroll taxes. IRS Form 941 is a paper form which you mail, along with payment, to the IRS at one of several addresses around the country, depending on where your business is located. You can download IRS Form 941 at the IRS website, print it out and mail it.