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Small businesses wrestle with Form 941 Employer’s Quarterly Federal Tax Return

October 16, 2014

IRS Form 941 Employer’s Quarterly Federal Tax Return is, almost by definition, one of the most often-encountered sources of tax trouble for small businesses. This is the tax form that reconciles the amount of wage tax that has been sent (or is now being sent) with the employer’s liability for collecting and submitting these funds. It must be done every three months. Failure to do so it treated more seriously than other types of tax reporting (income tax filings, for example) and the IRS will quickly threaten criminal action if a small business does not respond to several reminders to file the Form 941.  Interest and penalties also apply to late payment of wage taxes.

As a practical matter, most small business Form 941 filings are handled by the same payroll companies that handle all the other payroll-related transactions. These professionally prepared filings are unlikely to be a problem. Problems are most likely to surface before and after payroll company these service contracts. In those cases, it is usually possible for the accountant to reconstruct the filing information from available accounting records.

The most common source of problems of wage tax reporting stems from mis-categorizing workers as independent contractors. If the IRS considers them to be employees then the business is responsible for the wage taxes (often with interest and penalties by the time to problem is aired).

In my office, I have three ways of submitting the Form 941. Two are electronic filings built into accounting software systems. The third way is manually. The manual approach is best for solving problems left by situations described above. I recently completed work on a “missing 941” problem and it took about 4 hours to reconstruct the accounting information, verify it and complete the missing return. Earlier I worked on a case where a naive young business owner did not submit wage taxes, used the money to run the business, went bankrupt and then faced severe and even life-altering consequences. In this case, a re-vamp of his entire personal financial planning was required. It took almost a decade but he is back on a good track today.

It makes sense for any small business facing problems with wage tax reporting to speak with an accountant as soon as possible. I offer a limited free telephone consultation for this purpose.

 

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