Who Should File
In order to understand Form 944, you need to understand its big brother, Form 941: Employer’s Quarterly Federal Tax Return. Form 941 is used to report federal income taxes you withhold from your employee’ pay, the FICA (Social Security and Medicare taxes) you withhold from your employees’ pay and FICA you pay on your business’ behalf. It is also used to report any COBRA assistance payments you’ve made.
As a new employer, or small business, you may not incur much in FICA tax liability for your business, or pay employees enough to withhold a significant amount of federal income tax or employee FICA taxes. If your total for these taxes is $1,000 or less a year, you may be able to skip filing Form 941 quarterly and instead file Form 944 once a year.
So how do you know if you’ll be paying $1,000 or less a year in federal income and FICA taxes? Basically, if you are going to pay $4,000 a year or less in wages, you’ll qualify to file Form 944. It breaks down like this: You’ll be paying a combined 13.3% in FICA in 2011 (you will withhold 4.2 percent for Social Security and 1.45 percent for Medicare for employees, and you will owe 6.2 percent for Social Security and 1.45 percent for Medicare on each employee for your business’ portion). And most employees earning $10,000 or less a year will pay 10 percent in federal income tax. So if you pay $4,000 in wages, you’ll be remitting 23.3 percent on those wages combined for your employees’ portions and your portion of those taxes. 23.3 percent of $4,000 is $932.
If you’ve determined you qualify to file Form 944, you cannot simply choose to file Form 944 instead of Form 941. You must receive permission from the government. That can happen in one of a few ways:
- The IRS sees that your total tax remittance for the previous year qualifies you to file Form 944 and they send you a notice to do so.
- As a new business, you indicate that you expect to have $1,000 or less in employment tax liability for the calendar year when filling out Form SS-4, Application for Employer Identification Number and would like to file Form 944, and the IRS advises you to file Form 944 when you are issued your EIN.
- If you have not received notification to file Form 944 but estimate your employment tax liability for the calendar year will be $1,000 or less and would like to file Form 944, you can call 800.829.4933 by April 1, or send a written request postmarked by March 15. The IRS will send you a written notice that your filing requirement has been changed to Form 944.
If you are notified to file Form 944 instead of Form 941 and your tax liability increases, continue to file Form 944 until you receive notice to change.
File Form 944 by January 31, after the end of the calendar year either electronically through authorized e-file providers or through the mail at your state’s designated IRS center.
Remember, filing taxes and depositing taxes are normally separate actions. However, if your liability is less than $2,500 for the year, you can pay your the taxes when you file Form 944 instead of making monthly or semiweekly deposits. Or you can choose to voluntarily make deposits. The 2,500 threshold is different from the $1,000 or less that makes you eligible to file Form 944, as designated Form 944 filers whose businesses grow during the year may be required to make federal tax deposits, but they will still file Form 944 for the year.
Household employers and agricultural employers are not eligible to file Form 944.