Federal Returns

April 13, 2006

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Along with actually depositing your federal payroll taxes, you also have an obligation to file periodic returns that show how you computed your tax liabilities. The returns you must file for your income and FICA taxes are different from the returns you file for your FUTA taxes.

Income and FICA taxes: You must file Form 941, Employer's Quarterly Federal Tax Return, to report both the federal income taxes you withheld and the FICA taxes you withheld and paid during a calendar quarter. The deadline for filing the return is the last day of the first month after a quarter ends. However, if you've been timely with each of your deposits during the quarter, you're entitled to an automatic 10-day extension. No other extensions are permitted for filing Form 941.

Final returns. Once you go out of business or otherwise permanently stop paying wages that subject you to payroll taxes, you can end your obligation to file quarterly returns. You do this by designating the return for the last quarter that you pay taxable wages as a "final" return, by checking a box at the top of the return.
Monthly returns. In lieu for quarterly reporting, the IRS can require that you file on a monthly basis if you fail to make deposits or file returns when they're due. Monthly returns, when required, are filed on Form 941-M, Employer's Monthly Federal Tax Return. The returns are due by the 15th day of each month.

Did You Know?

The IRS announced the issuance of temporary and proposed regulations which reduce the filing burden on small businesses by changing the employment tax filing requirements for eligible employers to annually rather than quarterly. Employers that estimate their annual employment tax liability to be $1000 or less will be eligible to file the new Form 944, Employer's Annual Federal Tax Return.

The IRS will be sending letters of notification beginning February 1 to eligible businesses. Businesses that fail to receive a notification by February 15, 2006, should contact the IRS at 1-800-829-0115. New businesses can apply for annual filing when filing for their employer identification number (EIN). The IRS will inform the new employer whether they qualify when the EIN is issued.

FUTA taxes. For FUTA taxes, you must file an annual return on Form 940, Employer's Annual Federal Unemployment Tax Return. A shorter and simpler form (Form 940-EZ) is also available if you meet certain conditions: if (1) you paid all your unemployment taxes to a single state, (2) you paid all the taxes by their due dates, and (3) and all wages that were taxable for FUTA tax purposes were also taxable under the state's unemployment tax law.

The deadline for filing the return for each year is January 31 of the following year. However, if you've been timely with each of your FUTA tax deposits during the year, you're entitled to an automatic 10-day extension. The IRS may allow you a further extension of up to 90 days upon your written request.

Timely filing rules. If the due date for your Form 941 or Form 940 falls on a Saturday, Sunday, or legal holiday, you have until the next business day to timely file the return. A mailed return that bears a postmark indicating that it was mailed on or before the due date will be considered to have been timely filed even if it is received after the due date. If you're planning to rely on the "postmark" rule, send the return by registered or certified mail and request a return receipt. Using one of these mailing methods will give you written proof of the postmark date.