An Introduction To The Employer's Quarterly Federal Tax Return: Form 941

This is the first post in the Employment Tax Law series.  This series is dedicated to presenting individuals, sole proprietorships, and small to large businesses with a basic understanding of employment taxes, including the risks and responsibilities associated with those taxes.   

Federal law requires employers to withhold taxes from your employees’ income. Each time wages are paid, certain amounts must be withheld and remitted for federal income tax, social security tax, and Medicare tax.

Under this system, the taxes that are withheld are credited to the taxpayer’s employees in the payment of their own tax liabilities. This is true whether the taxpayer remits or retains the withheld taxes.

Federal law also requires the employer to pay the employer’s portion of Social Security (for 2010, 6.2% on the first $106,800.00 of wages) and Medicare taxes (1.45% on all wages). This amounts to 7.65% of each employees wages.

Employers SHOULD use Form 941 to report: wages; tips a taxpayer’s employees have received; both the employer’s and the employee’s share of social security and Medicare taxes; current quarter’s adjustments to social security and Medicare taxes for fractions of cents, sick pay, tips, and group-term life insurance; advance earned income credit (EIC) payments; and credit for COBRA premium assistance payments.

Employers SHOULD NOT use the form to report backup withholding or income tax withholding on non-payroll payments such as pensions, annuities, and gambling winnings. These should be reported on Form 945, Annual Return of Withheld Federal Income Tax.