Form 944 Guide: Federal Tax Return for Small Businesses

Form 944 Guide: Federal Tax Return for Small Businesses

For small business owners, navigating the tax landscape can be a daunting task. One of the key forms you need to be aware of is Form 944, the Annual Federal Tax Return. This form is specifically designed for small businesses to report and pay their federal income tax withholding, Social Security, and Medicare taxes.

Unlike other businesses that file quarterly returns (Form 941), Form 944 allows eligible small businesses to file annually, which can save time and streamline the tax filing process. In this guide, we will explain everything you need to know about Form 944, including who should file it, how to complete it, important deadlines, and tips to ensure you’re compliant with IRS rules.

What is Form 944?

Form 944 is used by small businesses to report the federal income tax they’ve withheld from their employees’ wages, as well as the Social Security and Medicare taxes they owe. It is an annual tax return, meaning eligible small businesses only need to file once a year instead of quarterly, as required by Form 941.

Form 944 is available to eligible businesses that owe $1,000 or less in employment taxes during the year. This form helps small employers avoid the need to file multiple times a year, simplifying their tax obligations.

Who Needs to File Form 944?

The IRS generally notifies businesses if they are eligible to file Form 944 instead of Form 941. However, you may be eligible to file Form 944 if:

• You have a small business with less than $1,000 in annual employment tax liability (this includes federal income tax withheld and FICA taxes).
• You receive a notice from the IRS stating that you are required to file Form 944.
• You operate in a business where employees’ payroll taxes are low enough to qualify for the annual filing.

If your business is required to file Form 941 because you owe more than $1,000 in employment taxes, you cannot switch to Form 944 unless the IRS specifically authorizes the change.

Key Information Needed to Complete Form 944

Before filling out Form 944, you will need the following information:

• Employer Identification Number (EIN): Your business’s unique tax identification number.
• Total wages paid to employees during the year.
• Federal income tax withheld from employees’ wages.
• Social Security and Medicare taxes withheld and your employer share of these taxes.
• Total federal employment taxes due for the year.
• Any adjustments or corrections to prior periods if necessary.
• Payroll records to ensure accurate reporting of all wages and taxes.

Step-by-Step Instructions for Completing Form 944

Follow these steps to complete Form 944 accurately:

Step 1: Provide Basic Employer Information
At the top of Form 944, enter your Employer Identification Number (EIN), business name, and address. This identifies your business to the IRS.

Step 2: Report Wages and Taxes Withheld

• Line 1: Enter the total wages paid to employees during the year. This includes all forms of compensation, such as salaries, tips, and bonuses.
• Line 2: Report the federal income tax withheld from employees’ wages.
• Line 3: Report the total Social Security wages and Medicare wages.

Step 3: Calculate Social Security and Medicare Taxes

• Line 4: Calculate and report the total Social Security taxes withheld (6.2%) from employees’ wages.
• Line 5: Calculate and report the Medicare taxes withheld (1.45%) from employees’ wages.

Step 4: Report Employer’s Share of Taxes

• Line 6: Enter your share of Social Security and Medicare taxes. As the employer, you are responsible for matching the Social Security and Medicare tax amounts withheld from employees’ wages.

Step 5: Calculate Federal Unemployment Taxes (FUTA)

• Line 7: Report FUTA taxes owed for the year. This tax is typically 0.6% on the first $7,000 of wages paid to each employee.

Step 6: Total Taxes Due

• Line 8: Add up the amounts from lines 2 through 7 to determine your total employment taxes due for the year.

Step 7: Report Any Adjustments

• Line 9: If necessary, report any adjustments or corrections, such as overpayment or underpayment of taxes for prior periods.

Step 8: Report Tax Deposits

• Line 10: Enter the total amount of tax deposits you’ve made throughout the year, which will be subtracted from the taxes due.

Step 9: Calculate Balance Due or Refund

• Line 11: Subtract your deposits from the total taxes due to determine whether you owe additional taxes or if you’re entitled to a refund.

Step 10: Sign and Date
Finally, sign and date the form to confirm the accuracy of the information you’ve provided. An unsigned form will not be processed by the IRS.

Payment Options for Employment Taxes

Once you have filed Form 944, you must pay any taxes you owe by January 31st of the year following the tax year. Payments can be made through several methods:

1. Electronic Federal Tax Payment System (EFTPS):
   The IRS recommends using EFTPS, an electronic system that allows you to make tax payments securely and on time.

2. Check or Money Order:
   If you prefer to mail in your payment, you can send a check or money order payable to the “U.S. Treasury.” Be sure to include your EIN on the payment.

3. Direct Debit:
   If you file Form 944 electronically, you may also be able to pay using direct debit, which automatically withdraws the payment from your bank account.

Filing Deadline for Form 944

The deadline to file Form 944 and pay any taxes due is January 31st of the year following the tax year. If January 31st falls on a weekend or holiday, the deadline is extended to the next business day. Late filing or late payment could result in penalties and interest.

Common Mistakes to Avoid When Filing Form 944

1. Missed Filing Deadlines:
   Failing to file on time can result in penalties. Be sure to file Form 944 and make any payments by the January 31st deadline.

2. Incorrect Tax Calculations:
   Double-check your calculations for Social Security and Medicare taxes, as well as federal income tax withholding. Incorrect figures can trigger IRS penalties.

3. Underreporting Wages:
   Ensure you report the full amount of wages paid to employees. Underreporting could result in fines and additional scrutiny from the IRS.

4. Not Reporting All Employees:
   Be sure to include all employees for whom you are required to withhold taxes. Even if an employee only worked a few hours or earned a small amount, their wages must be included in the total.

5. Missing Tax Deposits:
   If you haven’t made the required tax deposits throughout the year, you may face penalties. Keep track of your payments and ensure they are reported correctly on the form.

What If You Need to Correct Mistakes?

If you find an error on Form 944 after you’ve filed it, you can correct it by filing Form 944-X (Adjusted Employer’s Annual Federal Tax Return or Claim for Refund). This form allows you to correct mistakes such as underreporting wages, incorrect tax calculations, or missed tax deposits.

Conclusion

Form 944 is an important form for small businesses that qualify to file it. By filing this form annually instead of quarterly, small businesses can simplify their tax reporting obligations. Follow the steps in this guide to complete your Form 944 accurately, make timely payments, and avoid common mistakes.