You have several responsibilities as an employer—filing the IRS Form 944, also known as the Employer’s Annual Federal Tax Return, is one of them.
So what is Form 944?
Eligible small business owners who withhold income and payroll taxes from their employees’ paychecks can file this form to report federal income tax and FICA tax on employee wages.
The whole purpose of having Form 944 is to make tax filing more convenient for employers with less tax liability. It also asks for information regarding Additional Medical Tax withheld from high-income employees. Although someone must pay this tax with the other employment taxes, employers aren’t required to pay it.
Small employers must have annual liability payments totaling less than $1000 in the given year, which includes Social Security, Medicare, and federal income taxes, to file this form. According to the IRS, eligible employers in this category will pay less than $4000 on the total of paid wages for the calendar year.
Why Does Form 944 Matter?
Business owners generally file tax returns quarterly. But once eligible for Form 944, they can pay the withheld income and taxes once a year instead. This is why we mentioned this IRS form makes things more convenient from the employer’s viewpoint.
What Does Success Look Like?
You have to withhold 50% of the FICA tax from paychecks and pay the remaining 50% yourself. Depositing the income taxes with the correct tax authority (the federal government) is also your responsibility.
As one may guess, tracking this amount, as well as your total tax liability, can get very messy very fast. Plus, not doing it right will end up in you paying exorbitant penalties and fines. It’s to make sure businesses continue paying the appropriate amount of income and taxes every year that the IRS requires owners to file Form 944.
Let’s take a step back and expand on what the two most common terms associated with Form 944 mean: withholding taxes and FICA taxes.
Withholding taxes refers to the taxes employees pay on their income, including their standard income tax plus their portion of the FICA taxes. As an employer, it’s your job to withhold these taxes from your employees’ paychecks and deposit them to the government.
FICA taxes are the shared taxes split between you and the employees and comprise Social Security and Medicare taxes. Again, you’re responsible for withholding the employees’ portion of these taxes and depositing the full amount—your portion and theirs—to the tax authority.
Here’s when things get tricky: Every employee‘s income tax rate varies based on their annual income, qualified dependents, personal preference, among other factors.
Therefore, you should collect a W-4 form from every employee annually to learn how much income tax to deduct from their paychecks. On the other hand, FICA taxes are based on a set percentage across the board, namely 6.2% Social Security tax and 1.45% Medicare tax. These percentages, however, are subject to change, so you must stay up-to-date with the ongoing rate.
Keep in mind that social security only applies to the first $132,900 that an employee earns for a specific year. Neither you nor the employees are liable to pay anything on the exceeding amount. Additionally, employees earning more than a set annual income have to pay an extra 0.9% Medicare tax (Additional Medicare Tax) on any earnings over $200,000 for those filing as single or $250,000 for those filing jointly with your spouse.
Understanding the Requirements for Filing Form 944
New employers must mention the highest number of expected employees in their first year of operation on their Employer ID Number (EIN) applications. The application will then generate an “eligible to file Form 944“ letter.
But there’s a catch: You cannot file Form 944 just because you want to. You’ll need a written permit from the IRS.
To get this, you’ll have to file a written request to the authority between January 1 and March 15 of the current year or call 800-829-4933 between January 1 and April 1 of the current year. Since Form 944 has to be filed by January 31 of the consecutive year of being reported, you have until February 10 of the following year to file this form—provided you’ve made a deposit on time and in full.
Your liability here includes all withholding for income taxes and FICA taxes, as well as the amount owed by your company for its contribution to FICA taxes. The amount you’re liable to pay depends on the deadlines for paying the payroll taxes.
- If your total tax liability is less than $2500 for the year, the employment taxes for your business included on Form 944 can be payable when you file Form 944.
- If your total tax liability is $2500 or more for the year but less than $2005 for the quarter, you can pay deposits by the last day of the month after the end of the quarter.
- If your fourth-quarter tax liability is less than $2500, you can pay the fourth quarter’s tax liability with Form 944.
- If your total tax liability is over $2500 for a quarter, you must pay monthly or semi-weekly deposits depending on your schedule.
One Secret Weapon for Filing Form 944 Correctly
It’s incredibly crucial to have accurate payroll data before you start filing Form 944.
This form relates to payroll taxes, so it makes sense to have unrestricted access to all your payroll information and any other compensation you gave your employees throughout the year. To ensure accuracy and convenience, we highly recommend using versatile payroll software like OnPay to keep you at the top of your payroll.
OnPay is an excellent payroll solution that works for both employees and contractors. Not only does it make it easier to process W-2 and 1099 forms, but OnPay can also automate tax payments and filings. It’s also quite flexible, allowing you to make payments by direct deposit, debit card, or check.
Running payroll in all 50 states is also possible at no additional cost.
3 Strategies for Filing and Submitting Form 944
Form 944 is an important form that must be accurate and free of any manipulation or errors. And since it’s the federal government that you deal with, you should take every initiative to do it right, especially if you don’t want to burn a hole in your pocket because of paying expensive fines and penalties.
Here are the top three strategies to help you file Form 944 correctly:
Understand How to Calculate Your Tax Liability
The whole point of filling form 944 is to know your tax liability for the year. While the IRS already has step-by-step instructions, the overall formula can still be somewhat complex. To help you understand the calculation better, below is a small breakdown of the different formulae:
- You have to calculate your income tax withholding. The formula for this is [Employee’s tax rate] x [Total wages paid for the year].
Suppose your employee files as a single and earns $5,000 annually. As they fall into the 10% tax bracket, you must withhold and pay to the IRS 10% x $5000 = $500.
- You also need to calculate your Social Security tax. The formula for this is [12.4% total Social Security tax rate] x [No. of employees] x [taxable wages paid].
Continuing with our previous example and assuming you only have one employee, the tax will be 12.4% x 1 employee x $5,000 = $620
- Finding your Medicare tax liability is another crucial aspect. The formula for this is [2.9% total Medicare tax rate] x [total taxable wages paid].
According to our example, the Medicare taxes will be 2.9% x $5,000 taxable wages paid = $145.
Automate Complicated Calculations
Yes, we just explained all that math to help you understand why you pay what you pay. But you can take the easy way out.
Most payroll systems can do all these calculations for you, including finding out income tax withheld and taxable FICA wages. So all you have to do is pull up the numbers you want and fill out Form 944.
Be sure to invest in a high-quality and reliable payroll service. Most business owners end up using a lesser-known solution to save money. What they don’t realize is how these payroll services are unreliable and don’t remit any payroll taxes for their company—something that can cost them dearly.
Know the Submission Process
IRS Form 944 has to be filed annually. In other words, you only have to complete and submit it once every year. However, to submit Form 944 and make corresponding tax payments, you need to decide on a particular submission method.
Method #1: E-File and Pay Online
This is the IRS-recommended filing and payment method. According to them, E-file and Pay Online are faster, more accurate, and more secure.
You can either work with a tax professional who is an authorized e-file provider or use a tax software tool to file the form. To pay your annual tax liabilities—or make a tax deposit throughout the year—you’ll have to use the Electronic Federal Tax Payment System (EFTPS), though.
That said, the IRS recommends making payments via the Electronic Funds Withdrawal (EFW) option if you work with a tax professional or use software to file taxes. Not only does the system let you e-file, but also authorizes the payment with just one step.
Method #2: Hire an Accountant
Hands down, the most convenient option for filing and paying Form 944 taxes is to work with a tax professional or CPA. Tax professionals can file the form and deposit your corresponding payment via the EFW system.
Method #3: Mail Your Form and Payment
The other option is to mail in Form 944 and the corresponding tax payment.
You’ll have to print out Form 944 and a payment voucher called Form 944-V. After filling both of them, mail them to the corresponding address for your state. The mailing address is available on page 6 of the instructions page for Form 944.
Most Common Misconceptions of Form 944
You may have to fill different kinds of taxation forms. Naturally, it can be easy to get confused and make errors. To give you more context on Form 944, we’ve busted some of the most common misconceptions related to Form 944.
- Form 944 and Form 941 aren’t the same: The 944 tax form is very similar to Form 941. So if you end up getting confused, don’t worry; you’re not the only one.
Form 944 and Form 941 had the same purpose: to report employee wages and withheld federal income and FICA taxes. But there’s one main difference between the two—filing frequency. Form 941 must be filed quarterly, whereas Form 944 is done on an annual basis.
Moreover, employers cannot use both forms. It’s also not like you can choose between Form 941 or Form 944. The IRS determines which form you need to report wages and payroll taxes on, and you have to abide by their wishes.
- Employers with no employees still have to file Form 944: Form 944 is due even if you don’t have any employees working under you. The criteria to file the form—whether 944 or 941—is to officially register as an employer. So if you’re an employer, you have to file either Form 944 or Form 941.
Every registered company owes balances on their employment status regardless of how many employees they have.
- Having a lower tax liability isn’t enough for Form 944 eligibility: Before you think simply fulfilling the lower tax liability criteria is enough to make you eligible for IRS Form 944, let us stop you right there.
You can still be ineligible if you employ household employees only or if you employ agricultural employees only. It’s best to wait for the IRS’s decision and confirmation about your employment tax filing requirements before getting any ideas and file your tax liability accordingly.
We hope you now have a better understanding of Form 944. Getting the basics right will help you file taxes correctly and with minimum errors.