Accessibility Skip to Top Navigation Skip to Main Content Home  |  Change Text Size  |  Contact IRS  |  About IRS  |  Site Map  |  Español  |  Help  

Part 21. Customer Account Services

Chapter 7. Business Tax Returns and Non-Master File Accounts

Section 2. Employment and Railroad Tax Returns

21.7.2  Employment and Railroad Tax Returns

All Official Use Only content has been replaced with ≡.

21.7.2.1  (10-01-2009)
Employment and Railroad Tax Returns Overview

  1. This section provides general information and procedures for correcting employment tax returns and railroad tax returns. Both telephone inquiries and paper correspondence can be worked using this information. Included is information for items reported on current forms:

    • Form 941, Employer's QUARTERLY Federal Tax Return

    • Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund

    • Form 943, Employer's Annual Tax Return for Agricultural Employees

    • Form 943-X, Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund

    • Form 944, Employer's ANNUAL Federal Tax Return

    • Form 944-X, Adjusted Employer's ANNUAL Federal Tax Return or Claim for Refund

    • Form 945, Annual Return of Withheld Federal Income Tax

    • Form 945-X, Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund

    • Form CT-1, Employer's Annual Railroad Retirement Tax Return

    • Form CT-1 X, Adjusted Employer's Annual Railroad Retirement Tax Return or Claim for Refund

    • Form CT-2, Employee Representative's Quarterly Railroad Tax Return

  2. The American Recovery and Reinvestment Act (ARRA) of 2009 provides premium assistance for COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) continuation coverage for certain individuals and their families who lose health plan coverage due to an involuntary termination of employment during the period beginning September 1, 2008 and ending December 31, 2009. See IRM 21.7.2.5.10, Premium Assistance for COBRA Benefits, for more information.

  3. Form 944, Employer's ANNUAL Federal Tax Return, was new for tax year 2006. See IRM 21.7.2.4.14, Form 944 Employer's ANNUAL Federal Tax Return.

  4. Schedule D (Form 941), Report of Discrepancies Caused by Acquisitions, Statutory Mergers, or Consolidations, was new in 2005. Refer any loose forms received in Accounts Management to the CAWR (Combined Annual Wage Reporting) unit at the Cincinnati Compliance Campus, Stop 815G. Refer any questions that cannot be answered on the toll-free line to CAWR on Form 4442/e-4442.

  5. A new set of multi-purpose forms for adjustments and claims is intended to reduce burden for employers. These include Forms 941-X, 943-X, 944-X, 945-X and CT-1X. The entire set of forms was available January 2009 for use in correcting errors on previously filed employment tax returns. The effective date for the new forms and process is for errors ascertained on or after January 1, 2009. See IRM 21.7.2.5 for additional information.

21.7.2.2  (10-01-2009)
What Are Employment Tax Returns?

  1. Forms 941, 943 and 944 are filed by employers of individuals to report both the employer’s and the employees' share of social security and Medicare taxes, also known as FICA tax. They are also used to report the amount of federal income tax withheld from the employees’ wages. Form 945, Annual Return of Withheld Federal Income Tax, is filed to report income tax withheld from non-payroll items, such as pensions, annuities, IRA's and gambling winnings. If employers discover errors on or after January 1, 2009, they must use the applicable "X" form to correct information previously reported to the Service. These new "X" forms replaced Form 941c, Supporting Statement to Correct Information.

  2. Return due dates for Forms 941, 943, 944 and 945, are extended 10 days if timely deposits are made which full pay the amount of tax reported.

21.7.2.3  (10-01-2008)
Employment Tax Returns Research

  1. Research procedures are contained throughout this section within each type of form/tax.

  2. Refer to the appropriate reference material to research technical issues. These include instructions for each tax form, Publication 15(Circular E), Employer's Tax Guide, Publication 15-A, Employer's Supplemental Tax Guide, Publication 15-B, Employer's Tax Guide to Fringe Benefits, Publication 51(Circular A), Agricultural Employer's Tax Guide, and Publication 80(Circular SS), Federal Tax Guide for Employers in US Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands.

21.7.2.3.1  (10-01-2009)
Reporting Agents File (RAF)

  1. This is a file of taxpayers and Reporting Agents who file Forms 940, 941 and/or 944 electronically (e-file). Taxpayer prepares and signs Form 8655, Reporting Agent Authorization, or Service Approved Form. This authorizes the Reporting Agent to:

    • File their Form 940, Form 941, and/or Form 944 electronically

    • Make EFTPS (Electronic Federal Tax Payment System) payments for them

    • File forms that can and/or cannot be filed electronically

    Note:

    Forms 945 and Form 943 cannot be filed electronically, but the reporting agent may have the authority to file the return on paper for the taxpayer. The reporting agent also has the authority to file amended forms on paper for any form they filed electronically for the taxpayer.

  2. See IRM 21.3.9, Processing Reporting Agents File Authorizations, for more information.

21.7.2.3.1.1  (01-01-2006)
Magnetic Tape Codes (MTC)

  1. Information is stored on magnetic tape. Codes for the specific forms are listed below. All codes listed are valid for returns processed on or before February 10, 2004. See (6) below for more information on discontinuation of magnetic tape filing.

  2. The MAG–TAPE/FTD–CD= on Command Code ENMOD and the "MTC" on hard copy transcripts indicate which return is being filed on magnetic tape and whether research of the RAF should be performed.

    Mag–Tape Codes
    Code Description
    1 Files Form 941 on magnetic tape
    2 Files Form 940 on magnetic tape
    3 Files Form 940 and 941 on magnetic tape
    blank No returns filed on magnetic tape

  3. If code is 1-3, use CC RFINK to research the RAF with taxpayer’s EIN (Employer's Identification Number). (See IRM 2.3.16, Command Code RFINK.)

  4. Check the Notice Display Field.

    • A "Y" next to the Notice Display Field indicates taxpayer has given the authorization for the Reporting Agent to receive tax information for Forms 940/941.

    • An "N" or blank indicates no authorization was given to receive tax information (e.g. notices or other documents). However, the agent is authorized to discuss the return and/or payment. See IRM 21.1.3.5, Reporting Agents File (RAF), IRM 21.3.9, Processing Reporting Agents File Authorizations, and Form 8655 instructions for more information.

  5. The filing location, Tax Class and document codes for each employment MFT are shown below:

    Program MFT Code File Location Code Tax Class Code Document Code
    940 Mag Tape 10 08 ANSPC
    28 PSPC
    89 FSPC     		8 39
    941 Mag Tape 01 08 ANSPC
    28 PSPC
    89 FSPC     		1 39

  6. Form 941 for period ending December 31, 2003, and Form 940 for tax year 2003, were the final returns accepted using Magnetic Media. All magnetic tape filed employment returns were processed at either the Andover Submission Processing Campus or Fresno Submission Processing Campus for tax year 2003. Philadelphia Submission Processing Campus discontinued accepting Magnetic Media filed returns as of June, 2003.

21.7.2.4  (01-01-2005)
Employment Tax Returns Procedures

  1. The following are the procedures with the corresponding forms for the various tax returns.

21.7.2.4.1  (04-27-2007)
Reference Numbers (Employment Taxes)

  1. Use reference numbers to adjust tax, wages, and advance earned income tax credit (AEITC) on employment tax returns.

  2. The valid reference numbers for 2004 and prior Form 941 accounts and 2005 and subsequent are listed below, including Form 944.

    Item Reference Number Returns processed 2004 and prior Returns processed 2005 and subsequent Explanation
    003 X   Adjusted total of income tax withheld
    004 X X Taxable social security wages
    005 X X Taxable social security tips
    007 X   Adjusted total social security/Medicare tax
    072 X X Tips deemed to be wages ( IRC Section 3121 (q))
    073 X X Taxable Medicare wages & tips
    104   X Special additions to federal income tax ( IRC Section 3509)
    105   X Special additions to social security and Medicare tax ( IRC Section 3509)
    106   X Current quarter's fractions of cents (Form 941)/Current year's adjustments (Form 944)
    107   X Current quarter's sick pay (N/A for Form 944)
    108   X Current quarter's adjustment for tips and group life insurance (N/A for Form 944)
    109   X Current year's income tax withholding (Form 941)/Prior year's income tax withholding (Form 944)
    110   X Prior quarter's social security and Medicare taxes (Form 941)/Prior year's social security and Medicare taxes (Form 944)
    111   X Total income tax withheld
    112   X Total social security and Medicare tax
    113   X Total adjustments
    184 X   Total adjustments to withholding
    185 X   Total adjustments to social security/Medicare taxes
    CREDIT REFERENCE NUMBER (CRN)
    766 X X Advanced earned income credit (increase)
    767 X X Advanced earned income credit (decrease)

    Note:

    When adjusting an account, research any Computer Condition Codes (CCC "E" or "S" ) which may indicate a taxpayer's intent to receive a refund or credit elect. See Section 3 of Document 6209, IRS Processing Codes and Information.

21.7.2.4.2  (01-28-2005)
Item Reference Numbers (IRN's) and Credit Reference Numbers (CRN's) — Employment Taxes

  1. The total of IRN's 003, 007, and 008 (and 184 for Form 945 only) must equal the TC 29X amount on Forms 941 posting prior to 2005 and all Forms 943, 944, and 945 (regardless of when they posted). For 2005 and subsequent Forms 941, the total of IRN's 111, 112 and 113 must equal the TC 29X amount. The sum of IRN's 104 through IRN 110 must equal IRN 113.

21.7.2.4.2.1  (10-01-2009)
IRN 184/109 — Income Tax Withholding Adjustments

  1. Use IRN 184 with IRN 003 to show an adjustment made to income tax withheld for preceding quarters of the calendar year (or administrative error adjustments in prior years) on Form 941 accounts posting prior to 2005. On Form 941 accounts posting 2005 and subsequent, use IRN 109 with IRN 113 to report this adjustment. For Form 945, use IRN 184 with 003 or 008 regardless of when it posted.

    Note:

    With the implementation of the new "X" forms, see the applicable section in IRM 21.7.2.5, Adjusted Employer's Federal Tax Return or Claim for Refund, for the correct Item Reference Numbers to use.

21.7.2.4.2.2  (10-01-2009)
IRN 185/110 — FICA Tax Adjustments

  1. For Form 941 accounts processed prior to 2005, use IRN 185 with IRN 007 to indicate an adjustment made to FICA taxes for preceding quarters, or an adjustment made to FICA taxes in prior years for Form 943 (regardless of when it posted). For Form 941 accounts posting 2005 and subsequent, use IRN 110 with IRN 113 to report this adjustment.

  2. Use IRN 185 along with IRN 007 to adjust third party sick pay and/or fractions of cents, on all Form 943 accounts (regardless of when it posted) and Form 941 accounts posting prior to 2005. On Forms 941 posting 2005 and subsequent, adjust third party sick pay using IRN 107 and fractions of cents using IRN 106 along with IRN 113.

    Note:

    With the implementation of the new "X" forms, see the applicable section in IRM 21.7.2.5, Adjusted Employer's Federal Tax Return or Claim for Refund, for the correct Item Reference Numbers to use.

21.7.2.4.2.3  (01-28-2005)
IRN's Do Not Equal TC 150

  1. If IRN amounts do not equal the TC 150, process as below:

    1. Input TC 290 .00 and correct the IRN amounts to agree with the posted TC 150. Use the appropriate HC.

      Note:

      You do not have to adjust if the total of the IRN's are ≡ ≡ ≡ ≡ ≡ ≡ of the posted TC 150.

    2. On a second document, input any necessary adjustments.

    Note:

    Adjustments can be made without correcting the IRN(s), if the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the posted amount (unpostable check is bypassed). However, the IRN's must equal the TC 29X input on IDRS.

    Example:

    If TC 150 posted as $39.00 (all FICA tax) and the FICA posted as $35.00, input TC 291 for $39.00 and IRN 007 for $39.00 for all Form 943 accounts and Form 941 accounts posted prior to 2005. On Form 941 accounts posting 2005 and subsequent, input a TC 291 for $39.00 and IRN 112 for 39.00.

21.7.2.4.3  (01-01-2005)
Circular A/Circular E

  1. See Publication 51(Circular A), Agricultural Employer’s Tax Guide, for information on agricultural employees, including types of agricultural work subject to social security and Medicare taxes.

  2. See Publication 15(Circular E), Employer’s Tax Guide, Publication 15-A, Employer’s Supplemental Tax Guide, and Publication 15-B, Employer's Tax Guide to Fringe Benefits, for classes of employment and types of payments subject to social security and Medicare taxes.

21.7.2.4.4  (10-01-2009)
Deposits

  1. Taxpayers who file Forms 941, 943, 944, or 945 are required to pay the tax on these returns by making Federal Tax Deposits (FTD's), if the liability equals or exceeds a designated threshold amount during the tax period for which the return is filed. See the table below for the applicable thresholds:

    FTD Liability Thresholds
    Form Tax Period Ending $ Threshold
    941 200103 and subsequent 2,500
    941 199809 — 200012 1,000
    941 199806 and prior 500
    943 200112 and subsequent 2,500
    943 199912 and 200012 1,000
    943 199812 and prior 500
    944 200612 and subsequent 2,500
    945 200112 and subsequent 2,500
    945 199912 and 200012 1,000
    945 199812 and prior 500

    1. These deposits are paid to an authorized financial institution accompanied by an FTD coupon, or by EFTPS.

    2. Penalties are imposed if deposits are late, not made in sufficient amounts, made directly to the IRS or not made using EFTPS, if required. See IRM 20.1.4, Failure to Deposit Penalty, for more information.

    3. Input Computer Condition Code "J" if you are reprocessing a document and no penalty is to be assessed. Edit the "J" in the bottom middle margin of the return. Do not "J" code the re-input document, unless IDRS is unable to correctly figure the penalty, or if reasonable cause is being allowed.

    Note:

    Beginning January 2010, employers who file Form 941 will not have to make deposits during a quarter if their total tax liability for either the current quarter or the prior quarter is less than $2,500 and they did not incur a $100,000 next-day deposit obligation during the current quarter and they fully pay the amount due with a timely filed return for the current quarter.

  2. Research IDRS to determine if a CP 194 or CP 207 was generated whenever tax or periodic liability information is being adjusted. If so, coordinate with the FTD Penalty Function, if necessary, to prevent erroneous FTD penalty assessments.

  3. For more information on deposits and penalties, see:

    • Publication 15(Circular E), Employer's Tax Guide

    • Publication 51(Circular A), Agricultural Employer's Tax Guide

    • IRM 20.1.4, Failure to Deposit Penalty

  4. Balance due payments for Form 941, Form 943, Form 945 (including balances that are up to ten years past due) and Form 944 (including two prior years) can be made over the phone or by internet using a credit card. These payments can be made through either of two authorized third-party service providers who will obtain card authorization during the transaction and provide a confirmation number as proof of payment. Taxpayers currently required to make FTD's, must still make deposits. FTD's cannot be paid by credit card. For specific information on business payments made by credit card, see IRM 21.2.1.50.4, Credit or Debit Card Payments (Pay by Phone or Internet).

    Note:

    Beginning January 2009, adjusted return payments may be made by credit card for the Forms 941-X, 943-X, 944-X and 945-X (includes current year and two prior years).

21.7.2.4.5  (10-01-2009)
Sick Pay

  1. Generally, sick pay is any amount paid under a plan to an employee-participant because of the employee's temporary absence from work due to disability, sickness, or injury. This plan may be paid by the employer or a third party, such as an insurance company.

  2. Generally, sick pay is subject to:

    • FICA taxes (or railroad retirement taxes)

    • Federal unemployment taxes

    • Income tax withholding (unless paid by a third party who is not the employer's agent)

  3. Include total payments in taxable social security and Medicare wages paid on Form 941 and Form 944.

    Note:

    Reporting sick pay on Form 943 is EXTREMELY rare, but possible. Taxpayer reports sick pay on Form 943, using the adjustment line, same as on Form 941. The information below refers to the Form 941 and Form 944 line items.

    1. If payments are made by a third party (e.g., an insurance company), the employer deducts the employee’s share of social security and Medicare taxes paid by the third party on line 9 for Forms 941 using pre-2005 revisions. Forms 941, 2005 and subsequent revisions, reflect the sick pay on line 7b. Form 944 reflects these amounts on line 6a.

    2. If the return is being filed by the third party payor, the employer’s share of social security and Medicare taxes on the sick pay is deducted on line 9 for Forms 941 using pre-2005 revisions. Form 941, 2005 and subsequent revisions reflect the sick pay on line 7b. Form 944 reflects these amounts on line 6a.

    3. Substantiation is not required for sick pay adjustments on Form 941, line 9 or 7b or 6a on Form 944. Adjustments reported on line 9/7b can be filed electronically, however, TP's and reporting agents often file an additional Form 941-X indicating TPSP (Third Party Sick Pay) to report the adjustment. In this case IRN's 004, 073, 007 and 185 (pre 2005) or IRN's 004, 073, 107, 112 and 113 (2005 and subsequent) must all be corrected to report the adjustment. (See Publication 15-A, Employer's Supplemental Tax Guide, for more information on sick pay.)

    Note:

    Often the TP becomes confused and believes the Third Party (Insurance Company) made the payment of tax for them, and that the payment needs to be applied to the employer's account. In this case, explain how the Third Party (Insurance Company) reports the amount of FICA and WH withheld from the employees' sick pay and reports that portion on their own Form 941. The employer need only report the wages paid in full and deduct the employee's share of FICA (reported and paid by Third Party) on line 9 or 7b, Form 941. Adjustments for TPSP reflect changes to both IRN's 007 and 185. Provide the TP with Publication 15-A, which explains Sick Pay Reporting.

21.7.2.4.6  (10-01-2009)
Advance Earned Income Tax Credit (AEITC) – Forms 941, 943, 944, and Schedule H

  1. Employees who expect to be eligible to claim EITC can choose to receive advance payments (AEITC) during the year from their employer.

    1. The employer pays the EITC directly to the employees from income tax and FICA taxes withheld.

    2. The employer then claims a credit for these payments on Form 941, 943, 944 or Schedule H.

  2. If AEITC is claimed on amended returns, and:

    • Employer made no FTD's (verify payments), and

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡

  3. Do not allow a credit for payments which exceed ≡ ≡ ≡ ≡ ≡ of the total cash wages for 1994 and ≡ ≡ ≡ ≡ ≡ for 1995 and subsequent.

  4. If the adjustment to AEITC is allowable:

    1. Calculate correction by comparing posted AEITC to amount claimed on amended return.

    2. Input TC 290 .00 with CRN 766 to increase credit or CRN 767 to decrease credit.

      Note:

      TC 290 or TC 291 with a significant amount can be used in addition to CRN 766/767, if other tax items are also being adjusted.

21.7.2.4.7  (10-01-2009)
FICA Taxes

  1. The taxes under the Federal Insurance Contributions Act (FICA) taxes are social security and Medicare.

  2. Social security taxes are withheld at the rate of 12.4% (6.2% contributed by the employer and 6.2% contributed by the employee). However, it is withheld from wages and tips only within a set maximum amount. The table below details the set maximum amount from year to year.

    Year Maximum Amount of Wages
    2000 76,200
    2001 80,400
    2002 84,900
    2003 87,000
    2004 87,900
    2005 90,000
    2006 94,200
    2007 97,500
    2008 102,000
    2009 106,800

  3. Medicare taxes (since 1994) are withheld on all wages and tips.

    1. There is no set maximum amount.

    2. The rate is 2.9% (1.45% contributed by employer and 1.45% contributed by employee).

    3. IRN 004, is used to adjust taxable social security wages and IRN 073, taxable Medicare wages and tips.

21.7.2.4.7.1  (01-01-2005)
Individuals Employed by Parent or Spouse

  1. FICA must be paid on services performed by:

    • A child who is 18 or older employed by a parent in the course of the parent’s business

    • A spouse in the course of the employer spouse's trade or business

21.7.2.4.7.2  (01-01-2007)
Employees Receiving or Paid Tips

  1. Employers with employees who receive tips must pay FICA on the total amount of cash and charge tips reported. All cash and charge tips subject to employee FICA are considered wages, making these tips subject to the employer portion of FICA.

  2. For cash and charge tips of $20 or more in a month received from one employer, an employee must report the total amount of these tips to the employer by the 10th of the following month.

  3. Employers withhold income, FICA, or railroad retirement tax only on tips reported by employees, not on allocated tips. Allocated tips are not reported on Form 941, but must be added to income on the employee’s tax return (unless the employee can prove a smaller amount with adequate records).

    Note:

    See Publication 531, Reporting Tip Income, and Publication 1244, Employee's Daily Record of Tips and Report of Tips to Employer. (It also contains Form 4070, Employee’s Report of Tips to Employer, and Form 4070A, Employee's Daily Record of Tips.)

  4. At times, the employee may not have sufficient funds to cover their share of the FICA tax on tips. In this instance, adjustments to the portion uncollected from the employee must be reported on line 7c, Form 941 or line 6a, Form 944. The employer is still liable for the employer portion of FICA on the tips reported. Prior to 2005, employers would report the uncollected employee FICA on line 9 of the Form 941. The employer is not required to have backup for this reduction in tax.

21.7.2.4.7.3  (01-01-2005)
Reporting FICA to SSA

  1. FICA information is reported directly to SSA (Social Security Administration) at the end of the year by the employer on Form W-3 along with Copy A of all Forms W-2 (or on the equivalent electronically filed forms).

21.7.2.4.7.4  (01-01-2005)
IRC Section 3121(v)

  1. FICA tax is generally imposed at the time wages are actually or constructively paid. However, IRC Section 3121(v)(2)(A), contains a special timing rule. This special timing rule usually results in imposition of FICA tax before benefit payments under the plan begin. The rule provides that any amount deferred under a non-qualified deferred compensation (NQDC) plan must be taken into account as wages for FICA tax purposes the later of:

    • When the services are performed; or

    • When there is no substantial risk of forfeiture of the rights to such amount

  2. Section 31.3121(v)(2)-1, of the employment tax regulations provides guidance as to when amounts deferred under, or paid from, an NQDC plan are taken into account as wages for purposes of FICA tax. The regulations at this section are applicable January 1, 2000 and subsequent. They also contain transitional rules which provide relief for actions taken before the effective date of the regulations based on a reasonable good faith interpretation of the statute.

  3. Treasury Decision 8814 provided final regulations under IRC Section 3121(v).

21.7.2.4.7.4.1  (10-01-2009)
IRC Section 3121(v) Claims and Requests for Adjustments

  1. Claims and requests for adjustments may be received for current years as well as prior years. Treasury Decision 8814 contained a provision where affected taxpayers could make adjustments for tax years 1994 and 1995 as long as they were made by March 31, 2000. (Form 941 filers should have reported these on their first quarter 2000 return.) Since that period has already passed, these adjustments can no longer be made. Therefore, normal statute implications now apply.

  2. Most adjustments were previously reported as line 7e adjustments on Form 941 with the accompanying Form 941c. However, with the implementation of the new "X" returns, These adjustments will now be reported on the applicable adjusted employment tax return (Form 941-X or 944-X). Forms 943-X and CT-1X (volume would be extremely small) could also be filed.

  3. Any claims or requests for adjustments received (including increases) that indicate any of the following must be routed as CATA. (If there is any other indication you believe pertains to IRC Section 3121(v) not listed below, route as CATA also.)

    • 3121(v)

    • Regulations Section 31.3121(v)

    • Non-qualified deferred compensation (or NQDC)

    • Deferred compensation

    • Transitional rules

    • Treasury Decision 8814

    Exception:

    See IRM 21.7.2.4.7.4.2 for procedures relating to airline employee/retiree claims.

  4. These cases must be recontrolled to Exam. If Exam returns the case, instructions are included.

    Note:

    If a claim is received on Form 843 and Exam provides instructions to disallow the claim, follow normal claim disallowance procedures.

  5. Line item adjustments previously identified in Code & Edit were also forwarded to Exam. The adjustment was allowed on initial processing and the return was NOT "C" coded. Code & Edit photocopied the Form 941 (or other return), Form 941c, and any correspondence and routed to Exam with the notation "3121(v) — Detached in Code & Edit" .

    If Then
    Exam determines the adjustment is allowable Nothing is forwarded to Accounts Management.
    Exam determines the adjustment is not allowable 1. Exam routes the photocopies to Accounts Management with instructions for disposition.
    2. Accounts Management inputs the adjustment on the period indicated on Form 941 (or other form). For example, if the Form 941 was filed for period ending March 31, 2008 and the line item adjustment attempted to correct period ending June 30, 2007, input the adjustment on period ending March 31, 2008. (That is the period on which the adjustment was allowed on initial processing.)

21.7.2.4.7.4.2  (03-03-2008)
IRC Section 3121(v) - FICA Claims from Airline Employees and Retirees

  1. Current or retired ≡ ≡ ≡ ≡ Airline and ≡ ≡ ≡ ≡ Airline employees whose nonqualified deferred pension benefit plans were terminated during the airlines' bankruptcy proceedings are filing claims for refund. Generally, these retirees' claims request a refund of the 1.45% Medicare tax and occasionally the 6.2% social security tax paid by the employer under IRC Section 3121(v)(2)(A). The refund claim amounts are based on FICA taxes paid on the net present value of the deferred benefit for that employee once the value became reasonably ascertainable and the FICA taxes that would have been assessed, if paid on the actual deferred pension benefit received by the retiree. The majority of the claims are related to Medicare tax.

  2. Claims are being filed on Form 843 and/or Form 1040X. These claims may be received at any campus.

  3. All of these claims must be disallowed.

    1. Input 290 .00 with appropriate blocking series.

    2. Send Letter 105C and include the following paragraphs:

    "We have disallowed your claim for refund of FICA taxes. Section 3121(v)(2) of the Internal Revenue Code requires an employer withhold and pay FICA taxes on amounts deferred under nonqualified deferred compensation plans once the present value of the deferred benefit becomes reasonably ascertainable."

    "Unfortunately, an inherent feature of these plans is that benefits promised by the employer may never actually be distributed to the employees. Even though you may never receive the full value of the deferred benefits, these FICA taxes must be withheld and remitted by the employer. There are no provisions in law which allows the refund of FICA taxes if the plan is terminated."

    Note:

    Ensure all applicable years are addressed in the disallowance process.

    Note:

    Refer to IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns, for additional information.

  4. In addition to the above paragraph, if the taxpayer's claim was not timely filed, provide the following paragraph:

    "You filed your claim for refund more than 3 years after the date the tax return for withheld employee FICA taxes was to be filed. Withheld employee FICA taxes are deemed to be paid, and the tax returns with respect to such taxes are deemed to be filed on April 15 of the calendar year succeeding the calendar year in which your employer remitted these FICA taxes on your behalf."

    Note:

    The "not timely filed" paragraph is required in addition to the "substantive language" paragraph if the Form 843 and/or Form 1040X is filed more than 3 years following April 15 of the year following the year of retirement or any claim year.

21.7.2.4.8  (01-01-2006)
Income Tax Withholding (Employment Tax Returns)

  1. For withholding, when unable to determine proper tax correction on Form 941, and cases involving Forms 4668, 4669, and 4670, see IRM 21.7.2.4.19.1 .

  2. Amount of income tax withheld from wages is based on the following information shown on Form W-4, Employee’s Withholding Allowance Certificate:

    • Marital Status

    • Number of allowances to be used in computing the income tax withheld

    • Any additional amount the employee requests to be withheld

    • Exempt status

  3. All wages (except household employment wages now reported on Schedule H) which are subject to FICA tax are also generally subject to income tax withholding. An employer is not required to withhold federal income tax from wages paid a household employee. An employer should withhold federal income tax only if the household employee asks the employer to withhold it and the employer agrees. (See IRM 21.7.4.4.1.11, Social Security Domestic Employment Reform Act (SSDERA) of 1994 and BMF Schedule H.)

21.7.2.4.9  (10-01-2009)
Interest Free Adjustments (Employment Tax Returns)

  1. Beginning January 2009, for underpayment adjustments, a taxpayer has until the due date of the return for the period in which the error was ascertained to file his adjustment. However, Regulations state a taxpayer must pay by the time the adjusted return is filed.

    Note:

    These instructions are being left in the IRM as a reference only.

  2. An employer can make an interest free adjustment if he has made an undercollection or underpayment of FICA, income, or railroad retirement tax. (See Regulation 31.6205-1. The interest-free adjustment rules under section 6205 do not apply to the employee representative tax reported on Form CT-2.)

    1. The adjustment must be reported by the due date of the return for the period in which the taxpayer ascertained the error.

    2. An error is ascertained when the employer has sufficient knowledge of the error to be able to correct it.

  3. Adjustment of income tax is applicable only if the underpayment adjustment is made before the end of the calendar year in which wages were paid, unless it is the result of an administrative error. See IRM 21.7.2.5.2.1, Administrative Errors.

  4. No underpayment can be reported as an interest free adjustment after receipt of the earlier of either:

    1. Notice and demand for payment.

    2. Notice of Determination Concerning Worker Classification Under IRC Section 7436.

21.7.2.4.10  (01-01-2005)
Social Security Domestic Employment Reform Act of 1994 (SSDERA)

  1. SSDERA mandates collection of domestic (also referred to as household) service employment taxes for services performed after December 31, 1994 to be coordinated with the collection of income taxes.

  2. Although collected with income tax, household employment taxes are still considered employment taxes. Schedules H (Form 1040) for trusts and certain groups not required to file income tax returns are processed on MFT 05. See IRM 21.7.4.4.1.11, Social Security Domestic Employment Reform Act (SSDERA) of 1994 and BMF Schedules H, for more information on these filers and other provisions of SSDERA. See:

    • IRM 21.7.2.4.10.1, Forms Used in Reporting Employment Taxes for Household Employees , for filing requirements for other employers

    • IRM 21.7.3.4.16, Schedule H FUTA Erroneously Reported, for procedures on incorrectly reported FUTA (Federal Unemployment Tax Act) tax for domestic employees

    • IRM 21.6.4.4.8.11, BMF Form 941 Filed Instead of IMF Schedule H, for procedures when a taxpayer erroneously files Form 941 instead of Schedule H

21.7.2.4.10.1  (01-01-2006)
Forms Used in Reporting Employment Taxes for Household Employees

  1. Schedule H (Form 1040) is used both by individuals with Form 1040 series, or by Trusts with Form 1041. See IRM 21.6.4.4.8, Schedule H, Household Employment Taxes, or IRM 21.7.4.4.1.11, Social Security Domestic Employment Reform Act (SSDERA) for 1994 and BMF Schedules H. Both FICA tax and FUTA tax are reported on the Schedule H.

  2. Taxpayers (sole proprietors, farmers) with domestic and other employees can file Forms 941, 943, or 944, and include FICA tax and income tax withholding for domestic employees on their returns. The FUTA portion must be reported on Form 940 for these employees.

21.7.2.4.10.1.1  (10-01-2009)
State and Local Government Health and Welfare Agencies

  1. Notice 95-18 (1995-1 C.B. 300) was issued to clarify issues regarding SSDERA. State and local government health and welfare agencies, who assume responsibility for reporting and paying FICA taxes and any withheld income tax with respect to individuals furnished by the agency to provide domestic services (Home Health Care Service Providers) for recipients of public assistance. Use the following guidelines:

    1. Agency obtains a separate EIN to report these taxes.

    2. FTD penalties are waived for these agencies. To claim the waiver, agency writes "Household Employer Agent" , "Fiscal Agent" or "Choreworker " at the top of the return. See (3) below for additional information regarding abatement of FTD penalties for these filers.

      Note:

      See IRM 3.11.13.14(7), Form 941, Employer's QUARTERLY Federal Tax Return — General, or IRM 3.11.13.12.2(3), Computer Condition Code "J" , for additional information on these notations.

  2. Agencies report their tax on Form 941.

    Note:

    In September 1997, Chief Counsel issued a statement that no FTD penalties for all years (including 1995) are to be assessed on these filers if the taxes are paid based on a reasonable good faith interpretation of existing guidance including Rev. Procs. 70-6 and 80-4 and Notice 95-18.

  3. Abate any FTD penalties identified on these accounts, even if taxpayer is not requesting abatement. Taxes can be paid with the return. No deposits are necessary. See IRM 20.1.4.1.5.2, State and Local Health Welfare, for more information.

  4. Notice 2003-70 (2003-2 C.B. 916) provided a proposed revenue procedure giving updated guidance to state and local government health and welfare agencies who assume responsibility for reporting and paying FICA taxes and any withheld income tax, with respect to individuals furnished by the agency to provide domestic services for recipients of public assistance. Taxpayers may rely on Notice 95-18 to operate as a fiscal agent until further notice. See Notice 2003-70 which provides additional guidance.

  5. Agents must file Form 2678, Employer/Payer Appointment of Agent, to obtain permission to act as an Agent for these taxpayers. All Forms 2678 are processed by the Entity area in both the Cincinnati and Ogden campuses. For more information on Form 2678, See IRM 21.7.2.4.18.1.2.1, Agents. Form 2678 was completely redesigned in May 2007.

21.7.2.4.10.1.2  (01-01-2005)
Partnerships — Household Employees

  1. Partnerships cannot be domestic employers. If members form a "unit" (this is not recognized by Chief Counsel as a partnership) to have domestic employees work for them, either of the two options below can be used for reporting taxes and wages:

    1. One member of the unit can report all taxes and wages on Schedule H filed with his/her Form 1040, or;

    2. Each member can report his/her portion on Schedule H filed with his/her Form 1040.

21.7.2.4.10.1.3  (01-01-2005)
Corporations — Household Employees

  1. Corporations cannot be domestic employers. Employees of corporations must be reported on Form 941 or Form 944.

21.7.2.4.11  (10-01-2009)
Form 941, Employer’s QUARTERLY Federal Tax Return

  1. Employers who are required to withhold income tax on wages, social security tax, or Medicare tax, must file Form 941 quarterly to report both the employer's and employee share of such taxes.

  2. The taxable period and due dates for Form 941 are always the same. (See below.)

    Quarter Covered Quarter Ending Due Date
    January, February, March March 31 April 30
    April, May, June June 30 July 31
    July, August, September September 30 October 31
    October, November, December December 31 January 31

    Note:

    The return due date for Form 941 is extended 10 days, if timely deposits are made which full pay the amount of tax reported.

  3. Beginning with tax year 2006, taxpayers may be required to file Form 944, Employer's ANNUAL Federal Tax Return, instead of Form 941. Taxpayers who qualify to file Form 944 will receive a notification letter on or around February 1 (applies to tax years 2006, 2007 and 2008 only). Taxpayers must contact us by April 1 to opt out of the program, if they plan to file Form 941 electronically or anticipate their annual employment tax liability will be more than $1,000. Beginning with tax year 2009 and subsequent the Service is no longer identifying Form 944 eligible taxpayers via a Master File extract. The only taxpayers who will be brought into the 944 program will be those who self-identify during EIN assignment or those who contact the Service directly and inquire about the 944 program. For more complete information on Form 944, see IRM 21.7.2.4.14, Form 944, Employer's ANNUAL Federal Tax Return.See IRM 3.42.4,IRS e-file for Business Tax Returns, for information on filing Form 941 electronically.

  4. The redesigned Form 941 has the tax year in the title. Taxpayers must be encouraged to use the correct form to ensure proper processing.

21.7.2.4.11.1  (01-01-2006)
Seasonal Employers

  1. These are Form 941 filers who do not report a tax liability every quarter because they do not pay wages every quarter. They are relieved from filing tax returns for the quarters in which they have no liability.

  2. Taxpayers who meet this criteria must check the seasonal employer box on Form 941 to establish or maintain this status.

  3. At least one return must be filed each year.

  4. Many of the seasonal taxpayers will be required to file Form 944. However, if taxpayer is not mandated to file Form 944, he/she must continue to follow the instructions above. Some seasonal employers may not be required to file Form 944, however, they may qualify to file Form 944. If this TP contacts us by April 1st and the account reflects total liability for the prior year was $1,000 or less, change the filing requirements accordingly.

21.7.2.4.11.2  (01-01-2005)
Line 2, Form 941

  1. The amount from Line 2, Form 941, Total wages and tips plus other compensation, is identified on MF by the field name "TOTAL-COMP" . It is:

    • Used to verify taxpayer did not mistakenly enter this amount on Form 941-X in computing adjustments to taxable wages

    • For research purposes only, not an adjustable field

21.7.2.4.11.3  (01-01-2005)
Prior Quarter Adjustment Credit Claimed–Refunded in Error

  1. Sometimes a taxpayer claims a credit on a current Form 941 based on a prior quarter adjustment and overpayment.

  2. For example:

    1. An adjustment was made for a prior quarter Form 941 which resulted in an overpayment.

    2. Taxpayer filed Form 941 for the current quarter taking the overpayment as a credit.

    3. The returns posted after a refund had been issued from a prior quarter.

    4. Taxpayer returned the refund checks and requested it be applied to the balance due on the current tax period.

  3. Do the following:

    1. Input a credit transfer using the appropriate credit TC to transfer the available credit from the prior quarter to the current quarter.

    2. If all payments are timely, move credits as a credit elect (TC 830/710, CC ADD48), using the date of the return being adjusted as the TC 830 date and the due date of the return the credit is being applied to as the TC 710 date. If the credit elect consists of a credit or partial credit dated after the normal return due date ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , input separate transactions using the appropriate late payment dates. (See IRM 21.5.8, Credit Transfers.)

    3. If not moving as a credit elect, use the appropriate TC to move credit with the date(s) the payment(s) was received (CC ADD34 unless TC 820/700 must be used).

21.7.2.4.11.4  (01-01-2005)
Multiple Quarters Filed on Form 941

  1. Sometimes a taxpayer combines the wages for two or more quarters and reports them on a single Form 941.

  2. For example:

    1. Taxpayer files Form 941 for the 200912 quarter reporting wages and tax for the entire year.

    2. Return is received with an attachment providing a breakdown of wages and tax for the 200903, 200906, and 200909 quarters and a payment which covered tax, penalty, and interest for each period.

  3. Do the following:

    1. Prepare dummy Forms 941 for the 200903, 200906, and 200909 quarters from the information on the attachment.

    2. Route the returns for processing as non-remittance using the same received date as shown on the 200912 return.

    3. Input TC 291 and the appropriate IRN's to the 200912 quarter for the amount of tax being reported on the first three quarters. Use the appropriate HC.

    4. Input separate credit transfers to move the correct credits from the 200912 quarter to the 200903, 200906, and 200909 quarters.

    5. Notify taxpayer of the appropriate returns to file in the future.

    6. If no attachment is received explaining the breakdown, contact taxpayer to obtain one. (Faxed copies are acceptable.)

    Note:

    Process all documents in the same cycle, if possible.

21.7.2.4.11.5  (07-19-2006)
Negative Tax Liability on Form 941

  1. Taxpayers are instructed to adjust a prior period on a current period's return. This can result in the current period's tax liability being a negative amount.

  2. Taxpayers may submit a return reporting a credit that reduces an existing tax liability below zero.

    Note:

    Current programming allows for a tax adjustment to be input to reduce an existing liability below zero. However, if the tax liability is being reduced to a negative amount, any FTD penalty must be manually adjusted. See IRM 20.1.4.12.1, Manual Adjustments.

21.7.2.4.11.6  (10-01-2009)
Form 941 Discrepancy – Taxpayer Files Form 941-X

  1. A taxpayer may disagree with a notice of additional tax assessment due to an error or discrepancy on Form 941 and submits Form 941-X, citing any of the following as probable cause(s):

    • Transposition of figures

    • Entry made on wrong line

    • Omission of allowable adjustment

    • Error in computation of tax

    • Erroneous withholding tax or wages reported on Form 941

  2. Do the following:

    1. Review taxpayer’s statement and return to determine if adjustment action is necessary.

    2. If so, compute the amount of adjustment and input TC 291 for amount of decrease along with appropriate IRN(s).

    3. Taxpayer must submit Form 941-X when there is a change to wage/withholding amounts reported on an original return and it involves a prior tax year. For current quarters, the taxpayer can submit a faxed signed statement requesting a reporting error on the Form 941 be corrected. Accept this information over the phone and make adjustments to the TP's account if a signed statement can be received by fax supporting the change. If the TP is unable to fax a statement (you must request he fax the statement if the TP phones in), have him respond with a copy of the notice indicating corrections needed to the original return.

      Example:

      Taxpayer receives a CP 102 for 200809 indicating he owes an additional $612 in tax . The TP reviewed their original Form 941 and discovered that the wages reported were overstated by $4,000. Have the taxpayer fax a signed statement indicating the SS and Medicare wage correction that needs to be made, and adjust the TP's account accordingly. If they are unable to fax the information, instruct the TP to mail in the Form 941-X with a copy of the notice they received. Input STAUPS for six cycles to allow the TP time to respond to the notice. The same applies to overpayment notices (example: CP 112).

21.7.2.4.11.7  (12-20-2007)
Loose Employment Tax Schedules

  1. Loose schedules are those that have inadvertently been detached from a return or received from taxpayers without sufficient information to indicate why they have been sent or to allow them to be associated with the proper return. These include, but are not limited to Schedule B.

  2. Upon receipt of a loose employment tax schedule:

    If And Then
    Correct tax period can be determined Return has posted Follow IRM 20.1.4.11.8.2, Revised Record of Federal Tax Liability (ROFT) Provided.
    Correct tax period can be determined Return has not posted 1. Attempt to contact the taxpayer by phone for the necessary information to determine the correct disposition of the schedule.
    2. If taxpayer states he recently filed the return, allow for normal processing time. When return posts, follow the instructions above.

    Note:

    Be sure to utilize CC ERINV, if applicable.


    3. If normal processing time has elapsed and return has not posted, request taxpayer submit a complete return, preferably via fax.
    4. If unable to contact taxpayer, or return has not posted after normal processing times, return schedule to taxpayer requesting a complete return. Inform them if they have previously filed, to forward a copy with an original signature and attach the appropriate schedule.
    Correct tax period cannot be determined   1. Attempt to contact taxpayer to determine correct tax period.
    2. If able to determine correct tax period, follow instructions above.
    3. If unable to contact taxpayer, return schedule to taxpayer requesting a complete return. Inform them if they have previously filed, to forward a copy with an original signature and attach the appropriate schedule.
    IDRS research indicates the loose employment schedule is a duplication or unnecessary   Treat the loose schedule as classified waste.

21.7.2.4.12  (01-01-2007)
Electronic Processing of Employment Tax Returns

  1. Currently, IRS can process Forms 941 and 944 electronically. Several Program Options are available which businesses can select.

    • 941e-file Program (Legacy). This option was obsolete on 11-13-2006.

    • 941 On Line Filing Program

    • 941 XML Program (Employment Tax e-file System)

    • 944 On Line Filing Program

    • 944 XML Program (Employment Tax e-file System)

  2. An original filed electronic return cannot be requested. Instead, a TRPRT print must be requested, if a disallowance needs to be input. Use the TRPRT print and Blocking Series 99. Use BS 15 for all other adjustments.

21.7.2.4.12.1  (01-01-2007)
941 e-file Program

  1. All information concerning the different methods for electronic filing of Forms 941, 940 and 944 is contained in IRM 3.42.4, IRS e-file for Business Tax Returns.

  2. To distinguish the different electronic methods of filing on TXMOD, see IRM 21.7.2.4.12.3(1), Electronic Filed/TeleFile Filing Location Codes.

21.7.2.4.12.2  (10-01-2008)
Form 941 TeleFile Tax Record

  1. TeleFile for Form 941 was obsoleted after the second quarter of 2005.

  2. In the rare instance additional information is needed about TeleFile for Form 941, see the archived copies of this IRM on SERP (Servicewide Electronic Research Program).

21.7.2.4.12.3  (10-01-2008)
Electronic Filed/TeleFile Filing Location Codes

  1. All e-filed/TeleFiled returns can be recognized on TXMOD by their unique Filing Location Codes (FLC)/Document Codes (Doc Codes). The table below aids in determining which program the TP used to file.

    Program Tax Year FLC Doc Code
    941 e-file 2002 and prior 72– TCC 35
    941 On Line Filing 2002 and prior 76 AUSPC 39
    941 TeleFile 2002 and prior 72 TCC 41
    941 Mag Tape 2002 and prior 08 ANSPC
    28 PSPC
    89 FSPC     		35
    941e-file 2003 and current 26 CSPC 35
    941 On Line Filing 2003 and current 27 CSPC 39
    941 TeleFile 2003 through 2nd quarter 2005 26 CSPC 41
    941 e-file XML 2003 and current 35 CSPC 35
        38 CSPC 35
        38 CSPC 39
    941-PR e-file XML   78 OSPC 35
        78 OSPC 39
    941-SS e-file XML   60 OSPC 35
        60 OSPC 39
    944 On Line Filing 2006 and current 35 CSPC 49
    944 e-file XML 2006 and current 38 CSPC 49

    Note:

    Form 944-PR, Form 944 (SP), and Form 944-SS cannot be filed electronically.

21.7.2.4.13  (01-01-2005)
Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees

  1. Form 943 is filed on a calendar year basis to report income tax withheld and employer and employee FICA taxes on farm workers. The return is due on or before January 31 of the year following the end of the calendar year.

  2. Employers with household employees who work in a private home on a farm operated for profit can either:

    1. File Schedule H with their Form 1040 series return and report the household employees portion of wages and taxes, or

    2. Include the wages and taxes with other farm employees on Form 943.

  3. The Form 943 threshold for making deposits is $2,500.

21.7.2.4.13.1  (01-01-2005)
Wages Subject to FICA and Income Tax Withholding

  1. All cash wages paid to farm workers are subject to FICA and income tax withholding during the year, if either of the two tests below are met:

    1. Cash and noncash wages paid during the year to all employees totals $2,500 or more

    2. Annual cash wages of $150 or more are paid to an employee (This test is applied separately to each farm worker.)

  2. Cash wages paid to a farm worker who receives less than $150 during the year are not subject to FICA and income tax withholding, even if the total paid to all employees exceeds $2,500 or more, if the farm worker:

    1. Is employed as a hand-harvest laborer

    2. Is paid piece-rates in an operation usually paid on a piece-rate basis in the region of employment

    3. Commutes daily from his/her permanent home to the farm, and

    4. Had been employed in agriculture less than 13 weeks in the preceding calendar year

    Note:

    Amounts paid to these farm workers, however, count toward the $2,500 or more test for determining the social security and Medicare liability regarding other farm workers.

  3. Cash wages paid to a household worker are not counted in the $2,500 test and are not subject to FICA taxes unless the worker is paid cash wages at least equal to the threshold established by SSDERA for that particular year - $1,700 for 2009. (See IRM 21.7.4.4.1.11.1(3) for prior year thresholds.)

21.7.2.4.13.2  (01-01-2005)
Incorrect Type of Return Filed — Forms 941 and 943

  1. There are instances where taxpayer files one type of return but should file another. The most common cases are agricultural employers who file Forms 941, but should file Form 943.

    Example:

    Taxpayer files Form 941 for the 200903, 200906, and 200909 quarters and makes deposits for these accounts. At the end of the year, taxpayer files Form 943 for 200912 and claims deposits made during the year. The deposits claimed do not match and taxpayer receives a balance due notice. Taxpayer questions the notice and states all deposits were made timely.

  2. Do the following:

    1. Research taxpayer’s account to locate the deposits claimed.

    2. When necessary, contact taxpayer to determine which return must be filed.

    3. Adjust the 200903, 200906, and 200909 Forms 941 using TC 291 and the appropriate IRN's.

    4. Input credit transfers to move FTD's or other credits to the 200912 Form 943 module. Use the appropriate HC.

    5. Input CC BNCHG to delete the Form 941 filing requirement.

21.7.2.4.13.3  (10-01-2009)
Form 943 Adjustments

  1. If a taxpayer discovers an error on a previously filed Form 943, he is instructed to make the correction using Form 943-X, Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund. See IRM 21.7.2.5.4, for additional information.

  2. Form 943-X must have the applicable certification boxes checked, along with a detailed explanation.

  3. When adjusting Form 943, use the appropriate transaction codes and item reference numbers. See IRM 21.7.2.5.4(3) for more information.

21.7.2.4.14  (10-01-2009)
Form 944, Employer's ANNUAL Federal Tax Return

  1. Form 944 is the annual employment tax return for small employers. Instead of filing quarterly tax returns (Form 941), a select group of employers will now file an annual tax return (Form 944). To qualify for the program one of the following must apply:

    • The IRS notifies the taxpayer it is required to file Form 944, or

    • The taxpayer is a new employer who expects to have less than $1,000 in employment tax liability for the calendar year, or

    • Taxpayer filed Form 944 for the prior year and reported $1,000 or less in total tax liability.

    Reminder:

    For employers in the U.S. possessions, generally if you pay $6,536 or less in wages subject to social security and Medicare taxes, you are likely to pay $1,000 or less in employment taxes.

    Note:

    For tax years 2006 thru 2008, Form 944 taxpayers were identified via an eligibility extract. Beginning with tax year 2009 and subsequent, the eligibility extract will no longer be run to identify eligible Form 944 taxpayers. For these tax years, taxpayers will either self-identify during EIN assignment or contact the Service directly inquiring about the Form 944 program.

  2. MFT 14 was established for this form. Payments can be processed using all methods now available to pay Form 941 taxes. An electronic filing option is available. See IRM 3.42.4, IRS e-file for Business Tax Returns. The 'tax class' for Form 944 is "1" as it is for Form 941. The first Forms 944 were filed January 31, 2007.

    Note:

    MFT 14 is also the MFT for Non-Master File (NMF) Form 8613, Return of Excise Tax on Undistributed Income of Regulated Investment Companies. Form 944 is on MF and Form 8613 is on NMF. When generating a "C" letter from a Form 944 account, make sure the letter contains the correct form number.

  3. All penalties and interest applicable to Form 941 also apply to Form 944. Therefore, if the TP does not make deposits and submits payment with the return, the FTD penalty will be assessed for any payment of $2,500 or more paid with the filing of the return. If the TP discovers during the year that their liability is going to exceed the $1,000 threshold, advise the TP of their deposit requirement (monthly/semiweekly). More information on penalties for Form 944 can be found in IRM 20.1, Penalty Handbook.

21.7.2.4.14.1  (05-19-2009)
Form 944 Letters/Inquiries

  1. For tax years 2006 - 2008, notification letters were issued yearly on or around February 1st to newly eligible taxpayers. Those taxpayers that were already notified they were Form 944 filers, did not receive another notification letter. The table below describes the different types of notification letters:

    Description of notice Notice number (TY 2006-2008)
    Form 944 notification letter Notice 01345
    Form 944PR notification letter Notice 01347
    Form 944SS notification letter Notice 01348

  2. Beginning with tax year 2009 and subsequent, the eligibility extract will no longer be run to identify eligible Form 944 taxpayers. Even though eligible Form 944 filers will not be systemically identified (mailed a notification letter), taxpayers may still inquire to "opt in" the 944 program.

  3. The notification letter instructs the taxpayer to call us with any questions, or if he wishes to "opt out" of the program. For tax years 2006 - 2009, the taxpayer could only "opt out" for the two allowable reasons:

    1. Taxpayer wishes to file Form 941 electronically, and/or

    2. Taxpayer will exceed $1,000 in total tax liability

    Note:

    Starting with tax year 2010, taxpayers can "opt out" for any reason.

  4. The taxpayer must contact us by April 1st of the year to change their filing requirement for the current year. If filing requirements are changed on request of the TP, a letter of acknowledgement must be issued.

    Example:

    TP states he will exceed the $1,000 threshold. Change filing requirements as indicated and either fax an acknowledgement indicating the filing requirements have been changed, or generate Letter 3007C and acknowledge the change in an open paragraph clearly stating their filing requirements have been changed.

    Note:

    If faxing an acknowledgement, refer to IRM 11.3.1.10 for proper faxing guidance.

  5. The chart below indicates procedures for handling most of these inquiries (keeping in mind the April 1st deadline).

    If And Then
    TP states they will exceed $4,000 in wages, and/or $1,000 in taxes ENMOD indicates TP filing requirement is Form 944 Change filing requirement from Form 944 to Form 941 and issue Letter 3007C to confirm filing requirement change.
    TP states they filed a Final Form 941 for the third or fourth quarter of previous year Return has or has not posted for the period specified, and ENMOD indicates open filing requirements for Form 944 Close Form 944 filing requirement.
    TP states he wishes to file Form 941 electronically, even though he will not exceed $1,000 in tax Research indicates TP is e-filing Form 941 or not (not required as TP may wish to e-file for the first time) Change filing requirement from Form 944 to Form 941 and issue Letter 3007C. Inform TP that if their tax remains under $1,000, they will receive a notification letter again next year and will have to respond again if they wish to e-file Form 941.
    TP states they are not liable for an employment tax return (no employees, etc.) An employment tax filing requirement is open Close the open employment tax filing requirement.

    Note:

    You must verify the date the last wages were paid.
    TP states they already made a Form 941 payment for the current period, but would like to file Form 944 Payment is posted to a current quarter Form 941 period Move payment to Form 944 account and correct filing requirements as necessary.
    TP states they believe their liability will not exceed $1,000 for the year Account indicates liability is decreasing
    Example: Third and/or fourth quarter Form 941 accounts indicate little or no liability, or amounts of deposits have decreased recently. Or, TP was a seasonal employer whose total tax liability for the periods July 1, 2008 through June 30, 2009, indicates a liability slightly over $1,000     		Change filing requirements to Form 944 and close filing requirement for Form 941 and issue Letter 3007C to the taxpayer.

    Note:

    Use caution when considering this action. Remind the TP if their liability exceeds $1,000 for the year, they will not be eligible to file Form 944 the following year. Also advise the TP that they may be liable for FTD payments during the year if they owe $2,500 or more for the year. FTD penalties could possibly be assessed.

    TP states they are a new employer and believe their liability will not exceed $1,000 for the year (anytime during the year) ENMOD shows no filing requirement prior to 2009 Establish filing requirements for Form 944 and delete Form 941 filing requirements, if applicable and issue 3007C letter to taxpayer.
    TP states they are an existing employer with no prior employment tax filing history and believe their liability will not exceed $1,000 for the year (anytime during the year) ENMOD shows no filing requirement prior to 2009 Establish filing requirements for Form 944 and delete Form 941 filing requirements, if applicable, and issue 3007C letter to taxpayer.
    TP is a new employer and received CP 575 stating that he has Form 944 filing requirements TP states he is expecting to exceed the $1,000 threshold Delete the Form 944 filing requirement and establish filing requirements for Form 941. This can be done throughout the year.

    Note:

    Make sure the TP is, in fact, a new employer and has not filed any returns (941/944) for the year in question.

    Reminder:

    Taxpayers who currently file monthly Forms 941 (filing requirement codes 09 or 10), any taxpayer who has an account (in the eligibility period) in TDI status (MF status 02 or 03), and/or any taxpayer with an Employment Code "F" are not eligible for the Form 944 program and should not be established as a Form 944 filer.

    Note:

    If TP will accept hand written faxed document, notate on approved IRS fax cover sheet and sign statement stating TP's request for filing requirement change has been made. Make sure the filing requirement change is made prior to closing the call.

  6. Several CP notices will be issued after Form 944 is filed and the TP's total tax exceeds $1,000, and is no longer eligible to remain in the program. See IRM 21.7.2.4.14.2, Form 944 CP Notices, for additional information.

  7. At this time, Chief Counsel has determined that Reporting Agents are not permitted to respond to "opt out" of the program on behalf of their clients. The RA's must have a valid Power of Attorney (either on file, or that can be faxed to us) to act on behalf of their clients. RA's most likely will wish to keep their clients filing quarterly Forms 941, but caution must be exercised when speaking with the RA's and changing any filing requirements for their clients, unless the RA has a valid POA.

21.7.2.4.14.1.1  (01-09-2009)
Form 944 Filer Files Form 941 — Letter 4148C Inquiries

  1. If a taxpayer files a Form 941 in a calendar year in which they are designated as a Form 944 filer, the Form 941 unposts.

  2. If it is April 1st or prior, Entity Unpostables makes contact with the taxpayer to determine his intent and changes the filing requirement, as appropriate.

  3. If it is after April 1st, Entity Unpostables processes the return as a Reject and issues Letter 4148C to the taxpayer instructing him that he is a Form 944 filer and must file Form 944 annually.

    Note:

    Prior to 01-01-2007, Letter 4086C was issued instead of 4148C.

  4. If you receive an inquiry concerning Letter 4148C, follow the procedures below:

    If And Then
    Taxpayer states that he opted out of the Form 944 program by the April 1st deadline

    Note:

    Taxpayer must have submitted a written request and/or made contact via phone and the request was not processed. Accept the taxpayer's word.

    		The filing requirement was not changed to Form 941 and the 944 cache is set to the current year and request is received in the current year

    Example:

    TP is mandated to file Form 944 in 2007 and the request is received in 2007.

    		 Allow the taxpayer to continue to file Form 941.

    1. Request the originally filed return from Files using the DLN (Document Locator Number) of the unpostable/Rejected TC 150. If you are not able to secure the originally filed return, request a signed copy of the originally filed Form 941 from the taxpayer, via fax. (See NOTE below table.)

    2. Change the filing requirement to Form 941.

    3. Send Letter 3007C to confirm filing requirement change, even if resulting from a phone call.

    4. Transfer all applicable deposits to the Form 941 account.

    5. Send Form 941, secured from Files, for processing as the original. (If you are unable to secure the original return from Files and must use a faxed return, edit the received date on faxed forms to reflect a timely filed return. See Note below table.)

    Exception:

    If you are staffing the toll-free telephone lines at a remote call site, do not follow steps 1-5 above; instead complete Form 4442/e-4442 and route to the Campus AM account paper function within your Directorate or designated campus. Include the DLN of the unpostable/Rejected TC 150 on the Form 4442.

    Taxpayer states he opted out of the 944 program by the April 1st deadline The filing requirement was not changed to Form 941 and the 944 cache is set to the current year and request is received in a subsequent year

    Example:

    TP is mandated to file Form 944 in 2007 and a request is received in 2008.

    		 DO NOT change the filing requirement. Explain to the taxpayer he is still liable for a Form 944 because we are unable to change the 944 filing requirement in a subsequent year.
    Taxpayer did not opt out of the 944 program by April 1st   DO NOT change the taxpayer's filing requirement to Form 941.

    1. Instruct the taxpayer that he must file Form 944 and deposit accordingly.

    2. Input history items (via CC ACTON) to document that the taxpayer did not opt out and must file Form 944.

    3. Ensure all applicable deposits are applied to the 944 account.

    4. Advise taxpayer that if he files a timely Form 944 and exceeds the $1,000 annual threshold, he will be returned to a Form 941 filer next year.

    Taxpayer states any other extenuating circumstances   Refer to your manager/lead for approval.

    Note:

    If the unpostable/Rejected DLN is not available on IDRS, the Letter 4148C contains the DLN of the unprocessed return and can be used to request the return from Files. If you secure the originally filed return from Files and are forwarding to be processed as the original, cross out the DLN and make sure the received date is on the return.

    Reminder:

    Only the taxpayer or their authorized representatives may "opt out" of the Form 944 program. Chief Counsel has determined that Reporting Agents are not permitted to " opt out" of the program on behalf of their clients. The RA must have a valid POA (either on file or that can be faxed to us) to act on behalf of their clients. Third Party PIN designees are also not authorized to "opt out" of the Form 944 program for the taxpayer.

    Reminder:

    If the taxpayer's filing requirement is changed based on a 4148C reply, be sure to secure any missing returns (not already filed) that need to be filed. If the taxpayer has missing Forms 941, secure the returns, preferably by fax. Once returns are received, forward for processing with the actual received date.

21.7.2.4.14.2  (02-21-2007)
Form 944 CP Notices

  1. There are three new CP notices that may be issued to Form 944 filers.

    • CP 250A

    • CP 250B

    • CP 250C

21.7.2.4.14.2.1  (02-21-2007)
CP 250A

  1. CP 250A is issued to taxpayers who file Form 944 and have a total tax liability on line 7 of Form 944 of more than $1,000.

  2. These are only the returns that have met the PCD (Program Completion Date), posting in or before cycle 09 of each year (on or around February 22nd).

  3. This notice instructs the taxpayer that he is no longer eligible to file Form 944 and he must file quarterly using Form 941 for the current year.

  4. Follow the chart below for inquiries from taxpayers that received CP 250A.

    If And Then
    TP files Form 944 for 2009 and exceeds the $1,000 threshold TP states he wants to remain in the Form 944 program and will not exceed the $1,000 threshold in 2010

    Note:

    Verify with the taxpayer that he will, in fact, have a total tax liability of $1,000 or less for 2010. If doubt exists, do not allow the taxpayer to file Form 944.

    		Allow the TP to remain in the Form 944 program.

    1. Change the filing requirement to Form 944.

    2. Issue Letter 3007C to the taxpayer for verification of filing requirement change.

    3. Instruct the taxpayer of his deposit requirements.

    Note:

    Taxpayer may have exceeded the $1,000 threshold for many reasons. (For example, taxpayer corrected an administrative error from a prior year or a unique situation they had in 2009 that they don't expect to have in 2010.)

    TP files Form 944 for 2009 and exceeds the $1,000 threshold TP states he wants to remain in the Form 944 program, even though he will exceed the threshold Instruct the TP that he must file Form 941 and that he is not eligible for the Form 944 program.

21.7.2.4.14.2.2  (07-10-2009)
CP 250B

  1. CP 250B is issued to taxpayers who file Form 944 and have a total tax liability on line 7 of Form 944 of more than $1,000, but the return did not meet the PCD of cycle 09. This notice is for the returns processed between cycles 10 - 49.

  2. This notice instructs the taxpayer they will remain a Form 944 filer for the current year and to make the appropriate FTD's as required by the lookback analysis. These taxpayers will be allowed to remain Form 944 filers for the year because there is not a sufficient amount of time to notify them to file quarterly.

  3. Taxpayers that receive CP 250B will also receive CP 250C later in the year informing them that they will be changed to a Form 941 filer beginning January the subsequent year.

  4. Follow the chart below for inquiries from taxpayers that received CP 250B.

    If Then
    TP states he wishes to file Form 941 for 2010 and it is April 1 or prior Allow the taxpayer to file Form 941 for 2010.

    1. Change the filing requirement to Form 941.

    2. Issue Letter 3007C to the TP for verification of filing requirement change.

    3. Inform TP of his deposit requirements and Form 941 due dates.

    4. Verify that all applicable deposits are transferred to the Form 941 account.
    TP states he wishes to file Form 941 for 2010 and it is after April 1 Instruct the TP he must file Form 944 for 2010 and for 2011 he will be switched back to a Form 941 filer. Inform TP of his deposit requirements.

    Note:

    If you receive an inquiry from a taxpayer stating he has filed his Form 944 and it exceeds the $1,000 threshold and the return has not posted, do not change the filing requirement. Allow the Form 944 to post and the taxpayer will either receive a CP 250A or CP 250B, depending on when the 944 posts. Instruct the taxpayer to respond to the notice at that time.

    Note:

    Utilize CC BMFOLE to verify the 944 cache to determine when the taxpayer was mandated to file Form 944 and when their final Form 944 will be filed. If Form 941 filing requirements appear on CC ENMOD, verify CC BMFOLE for the correct filing requirements. See IRM 2.3.59-13, Command Code BMFOL Entity Display - Address Information, for more information on the applicable values for the Form 944 cache.

    Example:

    If TP's F944 CACHE YR 2007 = 1 and F944 CACHE YR 2008 = 1, then TP would be required to file Form 944 for 2007 and 2008 and Form 941's for 2009, if applicable.

  5. The valid characters for the 944 cache on CC BMFOLE are "blank" , "1" or "2" . The value of "2" is set in the 944 cache year when the taxpayer is going to be reverted from a 944 filer to a 941 filer the following year based on the filing of a Form 944 which exceeded the $1000 threshold. This code allows MF to correctly identify the CP 250C recipients at the end of the year.

    Example:

    TP files Form 944 for 200812 which posted after cycle 09 (in 2009) and exceeded $1,000 (CP 250B recipient). Form 944 cache for TY 2009 is set to "2" when the return posts and will remain until the end of the year when MF generates the CP 250C. At that time, the "2" will revert to a "1" and the TP's FR will be switched to Form 941 for TY 2010.

21.7.2.4.14.2.3  (02-21-2007)
CP 250C

  1. CP 250C is issued to Form 944 filers who:

    • Received CP 250B earlier in the year, or

    • File Form 944 after cycle 49 of the current calendar year. These taxpayers will not receive CP 250B, only CP 250C.

  2. This notice informs the taxpayer that because they exceeded the $1,000 threshold for the Form 944 participation, they must file Form 941 for the upcoming year.

  3. This notice is generated in cycle 52.

    Example:

    Taxpayer files Form 944 after the PCD and the total employment tax liability was more than $1,000 for tax year 2009. Taxpayer is allowed to remain in the 944 program and file Form 944 for 2010, but beginning in 2011, he must file Form 941.

21.7.2.4.14.3  (10-01-2009)
Form 944 Adjustments

  1. If a taxpayer discovers an error on a previously filed Form 944, the taxpayer is instructed to make the correction using Form 944-X, Adjusted Employer's ANNUAL Federal Tax Return or Claim for Refund. See IRM 21.7.2.5.5 , for additional information.

  2. Form 944-X must have the applicable certification boxes checked along with a detailed explanation.

  3. When adjusting Form 944, use the appropriate transaction codes and item reference numbers. See IRM 21.7.2.5.5(3) for more Form 944-X information.

21.7.2.4.15  (10-01-2009)
Form 945, Annual Return of Withheld Federal Income Tax

  1. All non-payroll items (pensions, annuities, IRA's, military retirement, gambling winnings, BUWH, Indian Gaming Profits) are reported on Form 945. As a general rule, all income tax and BUWH reported on Forms 1099 or W-2G must be reported on Form 945. The threshold for making deposits is $2,500.

  2. Form 945 is an annual return due January 31 following the close of the calendar year. A taxpayer is required to file Form 945 only for a calendar year in which the taxpayer is required to withhold tax required to be reported on Form 945.

    Note:

    The return due date for Form 945 is extended 10 days if timely deposits are made which full pay the amount of tax reported.

  3. Form 945 tax deposit requirements are separate from Form 941. They cannot be combined. Taxpayers follow either semi-weekly or monthly deposit schedules determined by the Form 945 lookback period. See IRM 20.1.4, Failure to Deposit Penalty.

  4. IRN's 003, 008, and 184 (periods 199512 and subsequent for IRN 184) are valid for Form 945. The MFT is 16, tax class is 1.

    Note:

    With the implementation of Form 945-X, see IRM 21.7.2.5.6(3) for the applicable item reference numbers.

21.7.2.4.15.1  (10-01-2009)
Form 945 Adjustments

  1. If a taxpayer discovers an error on a previously filed Form 945, the taxpayer is instructed to make the correction using Form 945-X, Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund. See IRM 21.7.2.5.6, for additional Form 945-X information.

  2. Adjustments on Form 945-X can only be made if they are the result of an administrative error.

    1. See IRM 21.7.2.5.2 for more information on administrative errors.

    2. Even if income tax or BUWH was erroneously withheld, it cannot be corrected in a subsequent year. This includes erroneous withholding on IRA's.

    3. The amount withheld must be reported on Form 945-X under the same EIN as was actually used to do the withholding. Withholding amounts cannot be transferred or delegated to different EIN's, unless such action involves a successor employer.

    Example:

    The mutual fund industry has an "industry practice" involving transfer agents where one agent has control of an account and withholds taxes for part of the year. Another agent may take control of the account and withhold taxes for the remainder of the year. The industry practice is for the agent in control of the account at the end of the year to report all taxes withheld. This CANNOT be done. Each agent must report and deposit the amount of tax withheld under its own EIN and issue a Form 1099. Any requests for adjustments involving this practice must be denied. Input TC 290 .00 in block 98 (without return) or 99 (with return) and issue Letter 105C or 106C as appropriate.

21.7.2.4.15.1.1  (01-01-2005)
Taxpayer Reports BUWH on Form 941

  1. Upon receipt of a Form 941 with BUWH, the procedures described below are implemented.

  2. Pipeline processing:

    1. Deletes BUWH from Form 941

    2. Enters SIC (Schedule Indicator Code) 3

    3. Inputs CCC "X" if a refund is due to taxpayer (generates a '-R' freeze)

    4. Issues a notice to taxpayer informing him/her of Form 945 filing requirements and the amount of BUWH deleted from Form 941 (They also inform taxpayer further information will be received in the near future.)

    5. Photocopies the return and uses Form 3465 to send a copy to Accounts Management on an expedited basis (Form 3465 indicates "Form 941/945 BUWH" .)

  3. Upon receipt of Form 3465, on an expedited basis, in Accounts Management:

    1. Transfer the proper deposits to Form 945 if it is evident which deposit(s) is intended for BUWH and inform taxpayer of the action taken.

    2. If you cannot definitely ascertain which deposits are intended for BUWH, contact taxpayer to determine the amounts and dates of the deposits to be moved to the Form 945 account. Phone contact is preferred.

    3. If unable to contact by phone, initiate correspondence and suspend the case for 40 days.

    4. When the proper credits have been transferred, call or send taxpayer a letter advising of the payments transferred to Form 945.

    5. If there appears to be any additional deposits credited to taxpayer’s account, or any deposits missing from taxpayer’s account (based on the deposits claimed on the copy of the Form 941), attempt to resolve while in contact with the taxpayer.

    6. If, after credit transfers have been completed, there is a credit balance on the account, take action to resolve the '-R' freeze. See IRM 21.5.6, Freeze Codes.

21.7.2.4.15.2  (01-01-2005)
Taxpayer Files Form 945, Reported Nonpayroll Withholding on Form 941 Previously

  1. When preparing Form 945, some taxpayers realize they have reported non-payroll withholding on Form 941 for the first three quarters of the year which should have been reported on Form 945.

  2. To resolve these cases:

    1. Code & Edit forwards the information to Accounts Management on Form 3465 noted "Non-payroll on Form 941" .

    2. When received in Accounts Management, if there is no breakdown by quarters and it cannot be determined by information on IDRS, contact taxpayer for the necessary information.

    3. These cases must be worked within 10 working days of receipt in Accounts Management if taxpayer provides the necessary information, including a breakdown.

    4. If no breakdown is provided, resolve the case as soon as possible.

  3. To adjust tax and make the necessary credit transfers on these cases:

    1. Input TC 291 with HC 1 (do not use another HC – we want taxpayer to receive a notice) to reduce each quarter’s tax on Forms 941 as indicated from the information provided.

    2. Use IRN 003 or 111 depending on the tax year.

    3. Do not adjust any FTD penalty assessed on the Form 941 module(s) on which you input TC 291, unless the decrease brings the liability for the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Follow procedures outlined in IRM 20.1.4.11.8.3, Amended or Supplemental Return, whenever adjusting the tax.

    4. Use TC 820/700 with the correct availability date to transfer the credit to MFT 16. If unable to apply the entire amount of the TC 291, write or phone taxpayer and inform him/her of the amount applied and the reason the entire amount could not be applied (e.g., taxpayer had a balance due on the period(s) which the decrease(s) was made).

    5. Input credit transfers for deposits made on fourth quarter Forms 941 which must be transferred to Form 945. (Taxpayer should provide a breakdown if only a portion of a deposit should be moved.) Use corresponding TC's for each payment (e.g., TC 652/650, TC 672/670).

    6. Perfect the filing requirements, if needed.

21.7.2.4.15.3  (01-01-2005)
Taxpayer Realizes Nonpayroll Withholding was Reported on Form 941, Has Not Yet Filed Form 945

  1. A taxpayer may realize during the year that non-payroll withholding was incorrectly reported on Form 941 which should be reported on Form 945.

  2. See IRM 21.7.2.4.15.2, Taxpayer Files Form 945, Reported Nonpayroll Withholding on Form 941 Previously, to make the necessary corrections when Form 945 is filed. (See procedures below and it will not be necessary for taxpayer to file amended Form 941-X for the quarters for which he has already filed.)

    1. For a quarter in which taxpayer has made deposits for his Form 941 account, but has not yet filed a return, ask taxpayer to provide the date of the deposits and the portion of each deposit which should be credited to his non-payroll withholding on Form 945. Make the necessary credit transfer(s). Instruct taxpayer not to include the amount of non-payroll withholding in his tax computation when he files Form 941 for that quarter.

    2. For quarters in which taxpayer has previously filed Form 941 erroneously reporting non-payroll withholding, instruct taxpayer, when he files Form 945, to attach a letter explaining the situation. It must include a list of dates and amounts for each deposit, or portion of each deposit, which was intended for non-payroll withholding on Form 945 and a breakdown by quarters, of the amount of non-payroll withholding erroneously reported on Form 941. Instruct the taxpayer to include the entire amount of non-payroll withholding for the year on Form 945, including the amount previously erroneously reported on Form 941.

    Caution:

    Do not make tax adjustments to Form 941 for the amount erroneously reported. Do not refund the money to taxpayer. It is needed on the Form 945 account when taxpayer files his Form 945. Adjustments will be made at that time.


Next

More Internal Revenue Manual