Instructions for Form 941 (1/2007)

General Instructions: Understanding Form 941

This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Table of Contents

Purpose of Form 941

These instructions give you some background information about Form 941, Employer's QUARTERLY Federal Tax Return. They tell you who must file the form, how to fill it out line by line, and when and where to file it.

If you want more in-depth information about payroll tax topics relating to Form 941, see Pub. 15 (Circular E), Employer's Tax Guide, or visit the IRS website at www.irs.gov and type “Employment Tax” in the Search box.

Federal law requires you, as an employer, to withhold taxes from your employees' paychecks. Each time you pay wages, you must withhold - or take out of your employees' paychecks - certain amounts for federal income tax, social security tax, and Medicare tax. Under the withholding system, taxes withheld from your employees are credited to your employees in payment of their tax liabilities.

Federal law also requires you to pay any liability for the employer's portion of social security and Medicare taxes. This portion of social security and Medicare taxes is not withheld from employees.

Use Form 941 to report:

payroll taxes (withheld federal income tax and both employee and employer shares of social security and Medicare taxes) for the quarter;
current quarter's adjustments to social security and Medicare taxes for fractions of cents, sick pay, tips, and group-term life insurance; and
prior quarters' adjustments to payroll taxes (attach Form 941c).

Do not use the Form 941 to report backup withholding or income tax withholding on nonpayroll payments such as pensions, annuities, and gambling winnings. Report these types of withholding on Form 945, Annual Return of Withheld Federal Income Tax.

Who Must File Form 941?

If you are an employer, you must file a quarterly Form 941 to report:

wages you have paid,
tips your employees have received,
federal income tax you withheld,
both the employer's and the employee's share of social security and Medicare taxes, and
advance earned income tax credit (EIC) payments.

After you file your first Form 941, you must file a return for each quarter even if you have no taxes to report unless you filed a final return or one of the exceptions (below) applies.

Exceptions

Special rules apply to some employers.

Seasonal employers do not have to file a Form 941 for quarters in which they have no tax liability because they have paid no wages. To tell the IRS that you will not file a return for one or more quarters during the year, check the box on line 17 every quarter you file the form. See section 12 of Pub. 15 (Circular E) for more information.
Employers of household employees do not usually file Form 941. See Pub. 926, Household Employer's Tax Guide, and Schedule H (Form 1040), Household Employment Taxes, for more information.
Employers of farm employees do not usually file Form 941. See Form 943, Employer's Annual Tax Return for Agricultural Employees, and Pub. 51 (Circular A), Agricultural Employer's Tax Guide.

If none of the above exceptions applies and you have not filed a final return, you must file Form 941 each quarter even if you did not pay wages during the quarter. Use IRS e-file, if possible.

What if you reorganize or close your business?

If you sell or transfer your business . . .

If you sell or transfer your business, you and the new owner must each file a Form 941 for the quarter in which the transfer occurred. Report only the wages you paid.

When two businesses merge, the continuing firm must file a return for the quarter in which the change took place and the other firm should file a final return.

Changing from one form of business to another—such as from a sole proprietorship to a partnership or corporation—is considered a transfer. See section 1 of Pub. 15
(Circular E). If a transfer occurs, you may need a new employer identification number (EIN). Attach a statement to your return with:

the new owner's name (or the new name of the business);
whether the business is now a sole proprietorship, partnership, or corporation;
the kind of change that occurred (a sale or transfer);
the date of the change; and
the name of the person keeping the payroll records and the address where those records will be kept.

If your business has closed . . .

If you go out of business or stop paying wages to your employees, you must file a final return. To tell the IRS that the form for a particular quarter is your final return, check the box on line 16 and enter the date you last paid wages. Also attach a statement to your return showing the name of the person keeping the payroll records and the address where those records will be kept.

See the Instructions for Forms W-2 and W-3 for information about earlier dates for the expedited furnishing and filing of Forms W-2 when a final Form 941 is filed.

If you participated in a statutory merger or consolidation, or qualify for predecessor-successor status due to an acquisition, you should generally file Schedule D (Form 941), Report of Discrepancies Caused by Acquisitions, Statutory Mergers, or Consolidations. See the Instructions for Schedule D (Form 941) to determine whether you should file Schedule D (Form 941) and when you should file it.

When Must You File?

File your initial Form 941 for the quarter in which you first paid wages that are subject to social security and Medicare taxes or subject to federal income tax withholding. See the table below titled, When To File Form 941.

Then you must file for every quarter after that—every 3 months—even if you have no taxes to report (unless you are a seasonal employer or are filing your final return. See Seasonal employers and If your business has closed . . . above).

File Form 941 only once for each quarter. If you filed electronically, do not also file a paper Form 941. For more information about filing Form 941 electronically, see Electronic Filing and Payment on page 1.

When To File Form 941

Your Form 941 is due by the last day of the month that follows the end of the quarter.
The Quarter Includes . . .	Quarter Ends	Form 941 Is Due
1. January, February, March	March 31	April 30
2. April, May, June	June 30	July 31
3. July, August, September	September 30	October 31
4. October, November, December	December 31	January 31

For example, generally you must report wages you pay during the first quarter—which is January through March—by April 30th. If you made deposits in full payment of your taxes for a quarter, you have 10 more days after the due dates shown above to file your Form 941.

We consider your form filed on time if it is properly addressed and mailed First-Class or if it is sent by an IRS-designated delivery service on or before the due date. See Pub. 15 (Circular E) for more information on IRS-designated delivery services.

If any due date for filing shown above falls on a Saturday, Sunday, or legal holiday, you may file your return on the next business day.

How Should You Complete Form 941?

Review Your Business Information at the Top of the Form

If you are using a copy of Form 941 that has your business name and address preprinted at the top of the form, check to make sure the information is correct. Carefully review your EIN to make sure it exactly matches the EIN assigned to your business by the IRS. If any information is incorrect, cross it out and type or print the correct information. See also If you change your name or address... on page 3.

If you pay a tax preparer to fill out Form 941, make sure the preparer uses your business name and EIN exactly as they appear on the preprinted form we sent you.

If you are not using a preprinted Form 941, type or print your EIN, name, and address in the spaces provided. You must enter your name and EIN here on the top of the form and on the top of page 2; and, if you complete and return Form 941-V, Payment Voucher, on the Form 941-V. Do not use your social security number (SSN) or individual taxpayer identification number (ITIN). Generally, enter the business (legal) name you used when you applied for your EIN on Form SS-4, Application for Employer Identification Number. For example, if you are a sole proprietor, enter “Ronald Smith” on the “Name” line and “Ron's Cycles” on the “Trade name” line. Leave the “Trade name” line blank if it is the same as your “Name.”

Employer identification number (EIN). To make sure businesses comply with federal tax laws, the IRS monitors tax filings and payments by using a numerical system to identify taxpayers. A unique 9-digit employer identification number (EIN) is assigned to all corporations, partnerships, and some sole proprietors. Businesses needing an EIN must apply for a number and use it throughout the life of the business on all tax returns, payments, and reports.

Your business should have only one EIN. If you have more than one and are not sure which one to use, write to the IRS office where you file your returns “Without a payment” or call the IRS Business and Specialty Tax Line at 1-800-829-4933.

If you do not have an EIN, apply for one from the IRS by mail, by telephone, by fax, or by visiting the IRS website at www.irs.gov/smallbiz. Request Form SS-4, Application for Employer Identification Number. If you do not have an EIN by the time a return is due, write “Applied For” and the date you applied in the space shown for the number.

Always be sure the EIN on the form you file exactly matches the EIN IRS assigned to your business. Do not use your social security number on forms that ask for an EIN. Filing a Form 941 with an incorrect EIN or using another business's EIN may result in penalties and delays in processing your return.

If you change your name or address... Notify the IRS immediately if you change your business name or address.

Write to the IRS office where you would file your return “Without a payment” to notify the IRS of any name change. (Get Pub. 1635, Understanding Your EIN, to see if you need to also apply for a new EIN.)
Complete and mail Form 8822, Change of Address, for any address change.

Check the Box for the Quarter

Under “Report for this Quarter of 2007” at the top of the form, check the appropriate box of the quarter for which you are filing. Make sure the quarter checked is the same as shown on any attached Schedule B (Form 941), Report of Tax Liability for Semiweekly Schedule Depositors.

Completing and Filing Form 941

Make entries on Form 941 as follows to enable accurate scanning and processing.

Use 12-point Courier font (if possible) for all entries if you are typing or using a computer to fill out your form.
Omit dollar signs and decimal points. Commas are optional. (Report dollars to the left of the preprinted decimal point and cents to the right of it.)
Leave blank any data field (except lines 1, 2, and 10) with a value of zero.
Enter negative amounts using a minus sign (if possible). Otherwise, use parentheses.
Enter your name and EIN on all pages and attachments. (Filers using the IRS-preaddressed Form 941 do not have to enter their name and EIN on page 2.)
Staple multiple sheets in the upper left corner when filing.

Other Forms That You Must Use

Give each eligible employee Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC). Then each eligible employee who wishes to receive any advance earned income credit (EIC) payments must give you a completed Form W-5, Earned Income Credit Advance Payment Certificate. For more information, see section 10 of Pub. 15 (Circular E) and also Pub. 596, Earned Income Credit.

Reconciling Forms 941 and Form W-3

The IRS matches amounts reported on your four quarterly Forms 941 with Form W-2 amounts totaled on your yearly Form W-3, Transmittal of Wage and Tax Statements. If the amounts do not agree, you may be contacted by the IRS or the Social Security Administration (SSA). The reconciled amounts are:

federal income tax withholding,
social security wages,
social security tips,
Medicare wages and tips, and
advance earned income credit (EIC) payments.

For more information, see section 12 of Pub. 15
(Circular E). See also the Instructions for Schedule D (Form 941), Report of Discrepancies Caused by Acquisitions, Statutory Mergers, or Consolidations.

Depositing Your Taxes: When Must You Deposit Your Taxes?

Determine if you are a monthly or semiweekly schedule depositor for the quarter.

The IRS uses two different sets of deposit rules to determine when businesses must deposit their social security, Medicare, and withheld federal income taxes. These schedules tell you when a deposit is due after you have a payday.

Your deposit schedule is not determined by how often you pay your employees. Your deposit schedule depends on the total tax liability you reported on Form 941 during the previous four-quarter lookback period (July 1 of the second preceding calendar year through June 30 of last year). See section 11 of Pub. 15 (Circular E) for details.

Before the beginning of each calendar year, determine which type of deposit schedule you must use. If you reported:

$50,000 or less in taxes during the lookback period, you are a monthly schedule depositor. Check the appropriate box on line 15 and, if your tax liability for the quarter was $2,500 or more, fill out the tax liability for each month in the quarter.
more than $50,000 of taxes for the lookback period, you are a semiweekly schedule depositor. Check the appropriate box on line 15 and, if your tax liability for the quarter was $2,500 or more, fill out Schedule B (Form 941) and attach it to Form 941 when you submit it.

See section 11 of Pub. 15 (Circular E) for the Next Day Deposit Rule on taxes of $100,000 or more accumulated on any day during the deposit period.

How Must You Deposit Your Taxes?

You may have to deposit the federal income taxes you withheld and both the employer and employee social security taxes and Medicare taxes. If your total taxes after adjustment for advance EIC (line 10) are:

Less than $2,500 for the quarter. You do not have to make a deposit, and you may pay the taxes in full with a timely filed return. However, if you are unsure that your taxes will be less than $2,500 for the quarter, deposit your taxes using the appropriate rules (above) to avoid failure to deposit penalties.
$2,500 or more for the quarter. You must deposit your taxes by using the Electronic Federal Tax Payment System (EFTPS) or by depositing them at a financial institution that is authorized to accept federal tax deposits (that is, authorized depository) with Form 8109, Federal Tax Deposit Coupon. See section 11 of Pub. 15 (Circular E) for more information.

EFTPS is an easy, safe, and convenient way for all employers to make their tax deposits. Using EFTPS helps eliminate errors commonly made on federal tax deposit (FTD) coupons. Some taxpayers are required to use EFTPS to deposit their taxes. See section 11 of Pub. 15 (Circular E) for details.

What About Penalties and Interest?

Avoiding penalties and interest

You can avoid paying penalties and interest if you:

deposit your taxes when they are due using EFTPS if required,
file your fully completed Form 941 on time,
report your tax liability accurately,
submit valid checks to the IRS,
furnish accurate Forms W-2 to employees, and
file Copies A of Form W-2 with the Social Security Administration (SSA) on time and accurately.

Penalties and interest are charged on taxes paid late and returns filed late at a rate set by law. See sections 11 and 12 of Pub. 15 (Circular E) for details.

Use Form 843, Claim for Refund and Request for Abatement, to request abatement of assessed penalties or interest. Do not request abatement of assessed penalties or interest on Form 941 or Form 941c, Supporting Statement To Correct Information.

A trust fund recovery penalty may apply if federal income, social security, and Medicare taxes that must be withheld are not withheld or paid. The penalty is the full amount of the unpaid trust fund tax. This penalty may apply when these unpaid taxes cannot be collected from the employer. The trust fund recovery penalty may be imposed on all people the IRS determines to be responsible for collecting, accounting for, and paying these taxes, and who acted willfully in not doing so. For details, see section 11 of Pub. 15 (Circular E).

Where Should You File?

Where you file depends on whether you include a payment with your form.

If you are in . . .		Without a payment . . .	With a payment . . .
Special rule for Exempt Organizations; Federal, State, and Local Governmental Entities; and Indian Tribal Governmental Entities; regardless of location		Internal Revenue Service P.O. Box 409101 Ogden, UT 84409	Internal Revenue Service P.O. Box 105273 Atlanta, GA 30348-5273
Connecticut Delaware District of Columbia Illinois Indiana Kentucky Maine Maryland Massachusetts Michigan New Hampshire	New Jersey New York North Carolina Ohio Pennsylvania Rhode Island South Carolina Vermont Virginia West Virginia Wisconsin	Internal Revenue Service Cincinnati, OH 45999-0005	Internal Revenue Service P.O. Box 70503 Charlotte, NC 28201-0503
Alabama Alaska Arizona Arkansas California Colorado Florida Georgia Hawaii Idaho Iowa Kansas Louisiana Minnesota Mississippi	Missouri Montana Nebraska Nevada New Mexico North Dakota Oklahoma Oregon South Dakota Tennessee Texas Utah Washington Wyoming	Internal Revenue Service Ogden, UT 84201-0005	Internal Revenue Service P.O. Box 105083 Atlanta, GA 30348-5083
No legal residence or principal place of business in any state		Internal Revenue Service P.O. Box 409101 Ogden, UT 84409	Internal Revenue Service P.O. Box 105273 Atlanta, GA 30348-5273

Your filing or payment address may have changed from prior years. If you are using an IRS-provided envelope, use only the labels and envelope provided with this tax package. Do not send Form 941 or any payments to the Social Security Administration (SSA).

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