I’ll provide an example for preparing IRS Form 941. Please see the Form 941 link below. I’m using the 4th Quarter of 2012 version, which is due January 31st, 2013. Lines 5a and 5b increase, from, 10.4% on the 2012 Form 941, to 12.4% on the 2013 version.
Hi, I’m Gary Bode, a Form 941 CPA. Payroll tax CPAs, services and software are expensive. Payroll administration is profitable. For example Paychex has more sales folks than bookkeepers. I like to train clients to be as self-sufficient in payroll as they care to be. Which includes preparation of Form 941. Then I’m available for support if and when needed. But of course, we do it all if the client prefers. At some point, bringing payroll in-house makes financial sense. That being said, payroll administration incurs heavy penalties once you make a mistake. I suggest asking your current CPA to look over the first Form 941 to check for errors. If you don’t have a payroll tax CPA, consider calling us.
I don’t recall ever getting payroll training as an undergrad or grad accounting student. I’ve taught the first four entry level accounting course for Baker College in the past. There was payroll example ever presented. A nice bookkeeper showed me around Form 941 and I’m trying to pass it forward.
“Payroll administration is just a set of processes; only the numbers change. Most clients are fully capable of doing their own payroll.”
– Gary Bode, Form 941 CPA
Rule of Thumb for Payroll Cash Flow
Your company’s true payroll cost is about 110-115% of gross wages. So if you’re paying an employee $100 of gross pay, expect to pay $10-$15 extra for payroll taxes, unemployment taxes and Workman’s Comp premiums.
Payroll Administration Pitfall
Payroll CPAs suggest you not think of payroll in terms of net pay. Plan your cash flow to include the Form 941 deposits. Technically, most of the payroll taxes you with hold are held in trust. So not paying them has criminal implications too. Again think of your total payroll administration cost as 110-115% of gross payroll.
Correcting Form 941 with Form 941-X
Correcting Form 941 is either time-consuming or costly. If you must use Form 941-X, ask your Form 941 CPA to help.
Form 941 Timeline
Deposits must be made by the 15th of the following month. Deposits can be monthly or quarterly, depending on the size of your payroll. Form 941 is due at the end of April, July, October and January. The April 941 reports payroll for the first Calendar Quarter; January-March.
How to make Form 941 Deposits
The IRS mandates some entities to deposit Form 941 payments through their online payment center. Just Google EFTPS. Sign up for an account. I expect they’ll require all entities to make payroll deposits through EFTPS in 2014. The era of using banks and payment vouchers is gone.
Other Payroll Administration obligations besides Form 941
- The annual Form 940.
- Sometimes Schedule A for Form 940.
- State Unemployment.
- State Withholding.
- Workman’s Comp.
- Annual Federal and State employee forms.
The Five Form 941 Components
- Federal withholding. Deducted from the employee’s gross pay, federal withholding is held in trust until you deposit it through EFTPS. The amount depends on the gross pay, frequency of the pay period, and the number of allowances the employee claims.Don’t be intimidated, the withholding amount is easily obtained through IRS tax tables.
- Employee Social Security. 4.2% of gross pay for 2012 (6.2% in 2013), up to a calendar year wage cap, of say $110,000 for conversational purposes. In this example, no employee exceeded the wage cap for the year and all gross payroll is subject to the 4.2%. Also held in trust.
- Employee Medicare Tax: 1.45% of gross wages with no yearly wage cap. Also held in trust.
- Employer’s Matching Social Security Tax: Your company “matches” the employee’s amount as described above. Not held in trust, because your company doesn’t deduct it from the employee’s gross pay. It is an added cost of employment, over and above gross wages.
- Employer’s Matching Medicare Tax: your company matches the employee’s amount as described above. Not held in trust. It is an added cost of employment, over and above gross wages.
Your company saves 7.65% by using subcontractors. But abuse of this classification makes them skeptical. There are no hard and fast rules about the employee vs. subcontractor issue. Ask your Form 941 CPA to help you balance out the 17 or so IRS guidelines.
Here’s a Form 941 filled out to the specs below.
Form 941: Company ID
Fill in your company information at the top of page 1 of Form 941. Place a check mark for the Quarter you’re reporting.
Part 1, Line 1 Form 941
Just count the number of employees your company had on the 12th.
Part 1, Line 2 Form 941
Gross wages you paid during the calendar quarter.
Part 1, Line 3 Form 941
Federal taxes your company with held during the Quarter.
Part 1, Line 4 Form 941
Yes you must file Form 941 even if you had no gross wages.
Part 1, Line 5a Form 941
Gross wages x 10.4%. You withheld 4.2% from the employee’s paychecks. Your Company “matches” that with 6.2%.
Part 1, Line 5c Form 941
Gross wages x 2.9%. You withheld 1.45% from the employee’s paychecks. Your Company “matches” that with 1.45%.
Part 1, Line 5b and 5e Form 941
I don’t cover a typical restaurant scenario in this post. Tips are a payroll tax component. But once you get the process right, tip related compliance is straight forward. Ask your Form 941 CPA.
Part 1, Line 6 Form 941
Total tax due before adjustments.
Part 1, Line 6-9 Form 941
I don’t cover adjustments here. But Line 7 is usually just a few cents secondary to rounding errors. I suggest calling your Form 941 CPA for help the first time you have sick pay or group life insurance. No big deal though.
Part 1, Line 10 Form 941
Total tax due after adjustments.
Part 1, Line 11 Form 941
How much did you deposit for the Quarter? An advantage of using EFTPS for deposits is their Payment History feature.
Part 1, Line 12a and 12b Form 941
COBRA complicates things. Just ask your Form 941 CPA to help once you incur COBRA issues.
Part 1, Line 13 Form 941
Since I don’t cover COBRA, your company’s total tax deposits are the same as Line 11.
Page 2 of Form 941 – Header
Enter your company’s name and EIN.
Page 2 Form 941 Line 16
Since we had over $2500 in taxes for the Quarter, the IRS rewards you with additional compliance work. For monthly depositors the amount of the deposits generally matches Form 941.
Page 2 Form 941 Part 3
Use this for a final Form 941 if your business closes. I suggest filing all Form 941s even if you’re a seasonal employer. It’s just easier. But payroll CPA opinions differ.
Page 2 Form 941 Part 4
3rd party designee. My clients list me even if they do their own payroll. Why? If there’s a problem it’s probably prudent to let me handle it. Doesn’t happen often in my experience.
Page 2 Form 941 Part 5
Sign, date, give your title and phone number.
Most clients just pay any extra amount due through EFTPS. Not doing so may confuse your Form 941 CPA secondary to having two types of payments.
I’m a payroll CPA that believes in payroll self-sufficiency. Our virtual allows us to serve you regardless of where your company is. For a free first phone consult call (910) 399-2705.