Form 941: What Employers Should Know Before Preparing 941 for 2023!

If you own a business with employees, it is crucial to file Form 941, also known as the employer’s Quarterly Federal Tax Return, in order to report the wages and taxes withheld (Medicare and Social Security taxes) from your employees’ paychecks to the IRS every quarter.

With the deadline to file Form 941 for the second quarter coming up in a month, now is the time to make sure that you are up to date with any changes to the form that you will need to know to maintain compliance and prevent any potential IRS penalties.

In this blog post, we will discuss the changes to Form 941 for 2023 and provide you with all the necessary information you need to complete the form accurately and efficiently. Before we dive into the specific changes, here’s an overview of Form 941.

What is Form 941?

Form 941, also referred to as the Employer’s Quarterly Federal Tax Return, is a tax form used to report wages, tax withholdings, and the employee’s share of Social Security and Medicare taxes. This form must be filed with the IRS every quarter.

Changes to Form 941 for 2023:

There is good news for employers that are about to begin the 941 filing process for the second quarter of 2023. The Form 941 hasn’t changed at all compared to last quarter (Q1 2023). However, there were a few updates to Form 941 for tax year 2023, here is a closer look at them.

• Increase in Wage Base Limit for Social Security Taxes: The wage base limit for Social Security taxes has been raised from $147,000 in 2022 to $160,200 in 2023. This means that any wages paid above this threshold are exempt from Social Security tax.
• No Wage Base Limit for Medicare Tax: Unlike Social Security tax, there continues to be no wage base limit for Medicare tax. All wages earned by employees are subject to Medicare tax.
• Small Business Payroll Tax Credit for Expanding Research Activities: One significant change is the inclusion of the Small Business Payroll Tax Credit for Expanding Research Activities on Form 941. Eligible businesses can now claim tax credits of up to $250,000 through this credit. Make sure to review the requirements and guidelines to take full advantage of this opportunity.
• Inclusion of Household Workers: Another notable update is the application of Social Security and Medicare taxes to household workers, such as maids or gardeners, who earn $2,600 or more in a year. Similarly, election workers who are paid over $2,200 are also subject to these taxes.

 Medicare and social security are the same for the 2023 tax year.

When is the Deadline to File Form 941?

Businesses are required to file Form 941 with the IRS each quarter. Here are the deadlines for filing 941. If the deadline falls on a weekend or federal holiday, the next business day becomes the deadline.

• The deadline to file Form 941 for Q1 (January, February, and March) is May 1, 2023. 
• The deadline to file Form 941 for Q2 (April, May, and June) is July 31, 2023. 
• The deadline to file Form 941 for Q3 (July, August, and September) is October 31, 2023.
• The deadline to file Form 941 for Q4 (October, November, and December) is January 31, 2023.

What are the Penalties for Not Filing?

Failing to file your Form 941 with the IRS before the deadline can result in severe penalties. The IRS maintains strict regulations regarding deadlines, and not adhering to them can have financial consequences for your business.

If you fail to file the form, your business will be subject to a penalty of 5% of the total tax amount due. Moreover, for each month that passes without the submission of the return, an additional 5% penalty will be charged, up to a maximum of 5 months.

It’s important to note that if you haven’t paid your tax bill in addition to not filing, you will initially be charged a penalty of 0.5% of the unpaid tax amount. This penalty will continue to increase each month until the payment is made, reaching 1% ten days after receiving the IRS notice of intent to levy. Therefore, it is crucial to fulfill your tax obligations promptly to avoid incurring these penalties.

How to File Form 941?

Businesses can file Form 941 either digitally or online. The IRS prefers that taxpayers e-file their returns rather than submitting paper forms. Because filing online is cost-efficient, secure, and allows for easy record-keeping, it is also the preferred filing method for the majority of businesses.

Are There Exceptions When You Don’t Have to File?

The answer is largely no. However, there are a handful of exceptions to keep in mind:

• Seasonal Businesses:

If you operate a seasonal business that doesn’t pay employees during all four quarters, you might be eligible for an exception. In such cases, it is crucial to inform the IRS of this information when you file your taxes.

Make sure you check the designated box on line 18 to indicate to the IRS that your business is seasonal. This allows you to adjust your tax obligations accordingly.

• Small Payroll Tax Liability:

If the total payroll tax liability of your business amounts to less than $1000, you may be eligible to file Form 944 instead of the regular Form 941. Form 944 serves as an annual filing alternative to Form 941, which is typically filed quarterly. This option allows eligible small businesses to streamline their tax reporting by filing only once a year.

• Household Employees:

Do you employ household employees, such as maids or gardeners, and pay them less than $2600 per year? If so, you might be exempt from certain tax filing requirements. In this case, you are not required to file regular employment tax returns. However, it’s important to note that you may still have certain obligations, such as paying Social Security and Medicare taxes, which may need to be handled through other means.

• Election Workers:

For those who employ election workers and pay them less than $2200 per year, there is another exception to consider. In this scenario, you may not be required to file regular employment tax returns. However, just as with household employees, it’s essential to understand and fulfill any additional tax obligations that may arise from employing election workers.

• Agricultural Labor:

If your business employs agricultural labor, the filing requirements differ from the standard procedure. In this case, you must file Form 943 instead of the typical employment tax forms. Form 943 is specifically designed for reporting taxes related to agricultural labor, taking into account the unique circumstances of this industry.

Bottom Line!

Since the deadline for Form 941 Q2, 2023 is approaching, staying updated on these changes and understanding the exceptions is key. This can help businesses streamline their tax reporting processes, avoid unnecessary penalties, and ensure compliance with the IRS. As always, it is advisable to consult with a tax professional or utilize reliable tax software to ensure accurate and timely filing of Form 941 and to address any specific concerns related to individual circumstances.