IRS Form 944: Who Needs to File and When
For small business owners, tax time isn’t just once a year. The IRS expects most entrepreneurs to pay payroll taxes quarterly, which encompasses Social Security, Medicare and withheld federal income taxes for all employees. But IRS Form 944 now eases that burden for owners of the smallest businesses who may only have to file an employment tax return once a year.
Also known as the Employer’s Annual Federal Tax Return, Form 944 is used by business owners who owe less than $1,000 in annual employment tax or about $4,000 to $5,000 in gross payroll. If you meet the requirement, you should receive a letter from the IRS noting your status as a 944 filer. We’ll walk you through the details of Form 944 and help you prepare to file your Employer’s Annual Federal Tax Return.
- What is Form 944?
- Who needs to file Form 944?
- Who can’t file Form 944?
- How to file your Employer’s Annual Federal Tax Return
What is Form 944?
Form 944 is the Employer’s Annual Federal Tax Return, not to be confused with Form 941, the Employer’s Quarterly Federal Tax Return.
On Form 944, you would report payroll information from the previous year, such as:
- Employee wages you paid
- Federal income tax you withheld
- Tips employees received
- Social Security and Medicare taxes for both employees and employer
- Advance earned income tax credit (EIC) payments
Business owners who owe less than $1,000 in employment tax must annually file Form 944. If your fiscal year varies from the calendar year, you must file according to the calendar year.
Who needs to file Form 944?
If you pay about $5,000 or less in wages, you would likely fall under the $1,000 employment tax threshold and would need to file Form 944.
The IRS notifies business owners who must annually file Form 944 instead of quarterly filing Form 941. Anyone who receives notification in the mail from the IRS must file Form 944, even if you don’t have any taxes to report or you have more than $1,000 to report.
To find out their filing responsibilities, new business owners must estimate their expected employee count when applying for an Employer Identification Number, or EIN, from the IRS. You would need to approximate how much employment tax liability you expect to generate in your first year in business to help the IRS determine which form you would need to file.
Existing businesses that haven’t received a letter from the IRS would usually file Form 941 on a quarterly basis. But if you decrease your employee wages and start reporting employment tax liabilities below $1,000, the IRS would automatically switch your business to 944 status the following year.
If you would rather continue filing Form 941 each quarter the following year, you could notify the IRS by April 1. You should receive a letter from the IRS stating your filing requirements during the first week of February the following year.
Who can’t file Form 944?
Essentially, you can’t file Form 944 unless the IRS gives you permission. If you don’t receive a letter from the IRS indicating your status as a 944 employer, then you would be expected to file Form 941.
Additionally, these businesses are barred from filing Form 944:
- Household employers: You wouldn’t file Form 944 if you solely employ household workers. Instead, you would report household employee wages and employment taxes on Form 1040.
- Agriculture employers: If you pay wages to agriculture employees, you would be ineligible to file Form 944. You would file Form 943 instead.
How to file your Employer’s Annual Federal Tax Return
Form 944 is due at the end of January each year and you only need to file once a year. You would need to complete the form with your EIN, which is the nine-digit tax identification number for your business. You would use this number as well as the legal name of your business when filling out the top part of the form.
The remaining parts of the form call for the total amount of wages, tips and other compensation paid to employees throughout the previous year. You would also need to input all federal income tax withheld from wages and all wages that are subject to Social Security and Medicare taxes. You would need to note any adjustments or credits that would affect your tax liabilities.
If your business grows throughout the year, you would still need to meet the IRS expectations and file Form 944, as long as your total employment tax liabilities are less than $2,500 for the year. You would need to break out your tax liability for each month when filling out the form if the yearly total exceeds $1,000. The IRS could change your filing requirements for the next year.
When to pay employment taxes
Many payroll service providers can withhold taxes from your employees’ paychecks throughout the year to make sure you keep up with your obligations. But if you haven’t already deposited any of your employment taxes, you could make a full payment when filing Form 944.
If you’ve already paid employment taxes for the first, second and third quarter but not the fourth, you could submit your last round of taxes with the form. You would need to enclose a check or money order made payable to the United States Treasury if submitting the form in the mail. Your EIN, the year and the form number need to be noted on the check or money order as well. The IRS does not accept cash.
When filing online, you could make payments through the Electronic Federal Tax Payment System.
The bottom line
The IRS expects employment taxes from all employers, but the amount you owe determines which employer’s tax return you need to file each year. Form 944 is generally reserved for small business owners who pay about $4,000 to $5,000 in wages, equaling $1,000 in employment taxes.
These businesses would need to annually file an employer’s tax return rather than filing quarterly, which is what’s required of businesses that pay more in wages and employment taxes.
If you’re at or below the $1,000 mark in employment tax liabilities, you would likely need to file Form 944 at the start of each calendar year. Keep an eye on your incoming mail and watch for a letter from the IRS indicating your eligibility to file Form 944.