IRS Form 944 Explained

Small businesses have a lot to learn when it comes to maintaining a good relationship with the IRS as they undergo their taxpaying responsibilities, including understanding which forms they need to file to ensure all of their taxes are paid on time so they don’t receive any unwanted penalties.

TABLE OF CONTENTS

Key Takeaways:

  • IRS Form 944, Employer’s Annual Federal Tax Return, is an official tax document used by smaller employers who pay taxes only once a year instead of quarterly and whose annual tax liability is less than $1,000 for FICA taxes, such as Social Security taxes, Medicare Taxes, and withheld federal income taxes.

  • The items needed to fill out and file IRS Form 944 include a copy of IRS Form 944, a report of the total amount of wages and tips that were paid to their employees throughout the tax year, reports of all of the tax that was withheld from the employee’s wages, such as Social Security and Medicare taxes, federal income tax, and additional Medicare tax, and basic identification information, such as the business EIN, business name, and address.

  • The deadline for filing IRS Form 944 is January 31st for small business owners that earn an income that results in under $1,000 being owed to the IRS for FICA tax and income withholding tax and who choose to pay the full tax liability at the time they file their taxes. For small business owners who qualify to file IRS Form 944 but, instead of waiting until they file their taxes to submit payment for the balance due, choose to make monthly tax deposits throughout the year, the deadline to file is extended to February 10th, or the first business day following that date if it falls on a non-business day.

What Is IRS Form 944?

IRS Form 944, Employer’s Annual Federal Tax Return, is an official tax document used by smaller employers who pay taxes only once a year instead of quarterly and whose annual tax liability is less than $1,000 for FICA taxes, such as Social Security taxes, Medicare Taxes, and withheld federal income taxes. The purpose of this tax form is to update the IRS about how much FICA tax and income tax are owed every year.

IRS Form 944 Vs. IRS Form 940

There are subtle differences between the tax forms that small businesses are required to file in order to retain good standing with the IRS. IRS Forms 944 and 940 are both filed by small business owners on an annual basis to report payroll information and how much taxes are owed to the IRS.

The difference between these forms is that while IRS Form 940 is used to report the Federal Unemployment (FUTA) tax liability for the employer, which is an employer-only tax, IRS Form 944 is used to report employee income tax withholding and FICA taxes, including Social Security and Medicare taxes, that are shared expenses between the employer and the employee.

IRS Form 944 Vs. IRS Form 941

IRS Form 944 is also similar to IRS Form 941, in that both of these types of tax forms are used by businesses to report income tax withholding and FICA tax to the IRS. 

The main difference between these two forms is how frequently they must be filed, which is determined by the total tax liability the business owes to the IRS by the end of the tax year.

If the business has an annual tax liability above the sum of $1,000, it will be required to file IRS For, 941 every quarter to report information to the IRS. This form is used by a majority of employers in the United States.

On the other hand, if a small business owner owes a tax liability of less than $1,000 for the entire tax year, and they have requested and been approved by the IRS to file IRS Form 944, this form will be used instead of IRS Form 941 to report their FICA tax and income withholding tax.

Information Required To File IRS Form 944

Gathering all of the information necessary to fill out and file IRS Form 944 will be helpful in streamlining the process for taxpayers, such as:
  • A copy of IRS Form 944
  • A report of the total amount of wages that were paid to their employees throughout the tax year
  • A report of all of the tips claimed by the employees of their business
  • Information about the FICA taxes, including Social Security and Medicare taxes, that were withheld from the employee wages, including both the employer’s and employee’s portion
  • Information about the federal income tax withheld from the employee’s paychecks
  • A report of any additional Medicare taxes that the small business withheld from the earnings of the company’s employees
  • Basic identification information, such as the business EIN, business name, and address.

When Must IRS Form 944 Be Filed?

If small business owners earn an income that results in under $1,000 being owed to the IRS for FICA tax and income withholding tax, and they choose to pay the full tax liability at the time they file their taxes, the deadline for filing IRS Form 944 is January 31st. 

For small business owners who qualify to file IRS Form 944 but, instead of waiting until they file their taxes to submit payment for the balance due choose to make monthly tax deposits throughout the year, the deadline to file is extended to February 10th, or the first business day following that date if it falls on a non-business day.

Small business owners are required to file IRS Form 944 regardless of whether they have taxes to report. In the case that the business closed during the tax year, they will still be required to file the final tax return for that year.

IRS Form 944 Instructions

There are five parts of IRS Form 944 that must be filled out before submitting the document to the IRS.

Top Section

The top box of IRS Form 944 requires the taxpayer to input information about the business, including the Employer Identification Number (EIN), business name, trade name, and address.

Part I

Part I of IRS Form 944 is the section used to input payroll information and calculate the employment tax liability for the year. 

The taxpayer must input the total wages, tips, and compensation paid to their employees, the federal income tax withheld from their wages, the FICA tax withheld from their wages, and the total taxes before adjustments. Next, the filer must report any relevant adjustment, such as a tax credit. 

Upon following the instructions, if the value on line 9 is greater than the value on line 10H, the difference between the two represents the tax liability due and should be input on line 11.

If the value on line 9 is less than the value on line 10H, there has been an overpayment of taxes, and this difference should be reported on line 12. In a situation in which the taxpayer overpaid, can also choose if they wish to apply the overpayment amount toward the next year’s tax return or if they’d prefer to receive the sum in the form of a tax refund. 

Part II

Part II of IRS Form 944 is the section where taxpayers must report the deposit schedule for the business and tax liability owed for this tax year. If the tax liability for the full tax year was less than $2,500, the filer can skip Part II and move on to Part II of IRS Form 944.

If the small business’s tax liability was more than $2,500 for the tax year, the tax liability for each month must be reported on lines 13a through 13l of part III, with the total liability being reported on line 13m. The sum of the tax liabilities for each month that is listed on line 13m should match the value listed on line 9 of Part I. 

There are also circumstances in which the small business earned more than $2,500 for the tax year but they are not required to fill out the boxes in Part II of IRS Form 944. If the business deposits tax payments on a semiweekly schedule or if they adopted this schedule due to the accumulation of tax liability of $100,000 or more during a deposit period, IRS Form 945-A should be used instead.  

Part III

Part III of IRS Form 944 is where taxpayers will input additional information about the business so the IRS can better understand the tax situation. If the small business closed during the tax year or the business stopped paying wages, the filer must check the appropriate box and fill in the appropriate dates and information.

If the circumstances in this section do not apply to the small business, Part III can be left blank, and the filer can move on to Part IV.

Part IV

Part IV of IRS Form 944 gives the filer the option to grant the IRS permission to communicate with a third-party designee, which could be a tax preparer, employee, certified public accountant (CPA), or another tax professional.

Granting this third-party designee permission to speak with the IRS on behalf of the small business could be a beneficial option for business owners who are confused about their responsibilities as tax filers and wish to have professional help throughout the process.

Allowing a tax professional to help with IRS Form 944 would ensure that all required information on the return is submitted accurately and timely, but this option is not required to file IRS Form 944.

If the filer wishes to grant a third-party designee permission to speak with the IRS, they can input the individual’s name, phone number, and a 5-digit personal verification pin.

If the filer does not wish to grant a third-party designee permission to speak with the IRS, they can select ‘No.’ and move on to Part V of the form.

Part V

The fifth part of IRS Form 944 is where the filer must print their name and title, input their signature, the date the form was signed, and fill in the best daytime phone number to contact them. 

If the taxpayer utilized the services of a paid preparer to help them fill out IRS Form 944, they must fill in the appropriate information in the section titled “Paid preparer use only.” The information required by the preparer in this section includes their name, preparer tax identification number (PTIN), signature, and date. If the paid preparer is self-employed, there is a box they can check. If the paid preparer works for a business, they must input the business name, EIN, phone number, and address.

Filing IRS Form 944

Once all of the sections of IRS Form 944 have been filled out, it is time for the taxpayer to finish filing the form with the IRS. Similar to other types of tax forms, there are multiple ways IRS Form 944 can be filed, such as electronically or sending a physical copy through the mail. However, no matter which method of filing they choose, they must follow the deadline of Form 944 for their situation to avoid facing late filing penalties.

If taxpayers are in a specific situation where they owe tax liability to the IRS after filling out the five parts of IRS Form 944, they may also need to submit a tax payment with the form. The amount that they must pay when they submit this tax form depends on how much the business owes in taxes for the year. For most businesses, employment tax deposits are required to be submitted throughout the year, usually on a monthly or quarterly basis. If submitting payments throughout the year, the IRS recommends that the taxpayer uses the Electronic Federal Tax Payment System (EFTPS), but if they prefer to use a different method to electronically submit their tax payments, a tax professional, payroll software, or another payroll service can organize another solution to make regular deposits.

Taxpayers will be required to submit payments when they file IRS 944 if they meet the following requirements:
  • The tax liability calculated and reported on Line 9 of IRS Form 944 reveals a value that is less than $2,500.

  • The tax liability calculated and reported on Line 9 of IRS Form 944 reveals a value that is greater than $2,500, the taxpayer has already submitted tax payments owed to the IRS for the first three quarters of the year, and their net taxes for the fourth quarter of the year is a value less than $2,500.

  • The taxpayer who has a monthly deposit schedule owes a small balance to the IRS of less than $100 or 2% of the total tax liability, whichever of these figures has a greater value.

Taxpayers who reveal that they should be submitting a tax deposit when they file IRS Form 944 must choose a method to make the payment on their tax balance. Taxpayers who prefer to file a physical copy of IRS Form 944 in the mail can complete the payment voucher Form 944-V that is attached to the end of IRS Form 944. After filling out IRS Form 944 and the payment voucher, taxpayers can settle the tax liability by attaching a check or money order and mailing the items to the appropriate address. Business owners have a lot of responsibility when it comes to managing their company and keeping organized when it comes to payroll taxes and employment taxes. If you want to request help with reporting payroll information and managing tax liability calculations for your company, the tax professionals at Ideal Tax are licensed and ready to guide you through the tax preparation process. We offer a free tax consultation.
Author: Luis Ceja - Director of Operations
Author: Luis Ceja - Director of Operations

Luis serves as the Director of Operations for Ideal Tax, overseeing a multifaceted team including case management, tax professionals, document specialists, customer support, training, and development.

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