Payroll Tax Returns

April 23, 2012

April 17th may mark the deadline for filing personal income tax returns, but for business owners, it marks the few weeks left before the first quarter employers’ federal tax return filing date. Also known as Form 941, this quarterly form must be filed by all employers subject to income tax withholding, Social Security, and Medicare (FICA) taxes, or both, (unless otherwise instructed by the IRS) who pay wages, even if no tax was withheld.

Federal law requires you, as an employer, to withhold taxes from your employees’ paychecks. Each time you pay wages, you must withhold certain amounts for federal income tax, social security tax, and Medicare tax. Under the withholding system, taxes withheld from your employees are credited to your employees in payment of their tax liabilities. Federal law also requires you to pay any liability for the employer’s portion of Social Security and Medicare taxes. This portion of Social Security and Medicare taxes is not withheld from employees.

Form 941 is due on a quarterly basis, at the end of the month following the end of the quarter, on the following schedule:

• First quarter of 2012, ending March 31, submit by April 30
• Second quarter 2012, ending June 30, submit by July 31
• Third quarter 2012 , ending September 30, submit by October 31
• Fourth quarter 2012, ending December 31, submit by January 31, 2013

You should use Form 941 to report the following amounts:

• Wages you have paid
• Tips your employees have received
• Federal income tax you withheld
• Both the employer’s and the employee’s share of social security and Medicare taxes
• Current quarters adjustments to social security and Medicare taxes for fractions of cents, sick pay, tips and group-term life insurance
• Credit for COBRA premium assistance payments

A few changes were made to form 941 in 2012 to reflect legislative changes affecting an employer’s tax liability. Under the Middle Class Tax Relief and Job Creation Act of 2012, enacted in February, there was a continuation of the 2% payroll tax cut for employees through the end of this year. The calculations for Form 941 have been changed to reflect this cut. The cut will not have any effect on employee Social Security eligibility.

The Social Security wage base has been increased for 2012, to $110,100. For workers who reach $110,100 in wages during 2012, no Social Security is taken out for those employees above that amount, and the Medicare tax rate remains at 1.45%, the same as for 2011. There is no limit on wages to which the Medicare tax is applied.

So, with the deadline looming, you will definitely want to file the necessary forms. You can avoid paying penalties and interest by paying your taxes when they are due, filing your 941 on time, reporting your liability accurately, and furnishing valid W-2 forms to your employees. The IRS charges penalties and interest on taxes and returns filed and paid late at a rate set by law.

At Wallace & Associates, we are here to help! If you need help filing your current quarter taxes, or need help for the whole year, we are only a phone call away.