Depositing and Reporting Withheld Taxes: Federal
Original Author: Ryan F. Donovan
Updating Author: Alice Gilman
- All employers are required to obtain a federal Employer Identification Number (EIN) from the IRS. EINs serve as account numbers employers must use when making tax deposits, filing tax returns, and when contacting or dealing in any way with the IRS or the Social Security Administration (SSA). New employers must apply for an EIN no later than seven business days after the first payment of wages. See Employer Identification Numbers.
- All employers that make tax deposits with the IRS are assigned a deposit schedule based on the amount of taxes being paid. Tax deposit frequencies can range from once a year to the next business day after a payday. Penalties and interest accrue on amounts deposited late or not deposited at all. See Payroll Tax Deposit Frequencies.
- All federal payroll tax deposits must be made using the Electronic Federal Tax Payment System (EFTPS). Employers that do not wish to use EFTPS may make their deposits using a third party, such as a payroll provider or CPA, or through their bank. See Electronic Federal Tax Payment System.
- Employers are subject to stiff penalties for failing to deposit the full amount of employment taxes due on time. Penalties may be waived for reasonable cause. See Penalties for Late Tax Deposits.
- All employers that withhold federal income and employment taxes from employees' pay must file Form 941, Employer's Quarterly Federal Tax Return. The form is used to report the total amount of taxable wages paid and the total amount of federal income, and employment (Social Security and Medicare taxes) withheld in each calendar quarter. Form 941 must generally be filed by the last day of the month that follows the end of the calendar quarter. See Form 941, Employer's Federal Quarterly Tax Return.
- Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, is used to correct errors made on a previously filed Form 941. If an employer wants to make corrections or adjustments to Form 941 for three different quarters, it must file a separate Form 941-X for each quarter. The due date for filing Form 941-X depends on the quarter in which the error is discovered and whether employment taxes were underreported or overreported. See Forms Used to Make Adjustments, Corrections, and to Receive Tax Credits and Refunds.
- Employers may electronically file Forms 940, 941 and 944 using the Employment Tax e-File System. Paper forms may also be filed. See Electronic Filing of Forms 940, 941 and 944; Paper Filing of Forms 940, 941 and 944.
- Employers must make deposits and file reports for amounts withheld during the year from nonpayroll items using Form 945, Annual Return of Withheld Federal Income Tax. These items include pensions, annuities, backup withholding, and gambling winnings. See Reporting Nonpayroll Withholding on Forms 945 and 945-A.
- In addition to penalties for late deposit of taxes, the IRS imposes penalties for late filing of employment tax returns, such as Forms 941 or 944, and for not paying the tax that is due with the return. Other penalties may also apply. See Penalties for Late Reporting and Payment of Tax.
- Form W-2, Wage and Tax Statement, is used by employers to report the amount of all compensation paid to employees and all federal, state, and local income and employment taxes withheld from employees' compensation in a calendar year. There are six copies of Form W-2 and each must be provided to the right party by a certain due date. See Form W-2 Reporting.
- Employers must send Form W-3, Transmittal of Wage and Tax Statements, to the SSA with any paper copies of Copy A of Form W-2. The totals of the amounts reported on an employer's W-2 forms are included on Form W-3, which serves as a reconciliation statement for the W-2s. Electronic Copy A filers do not need to file Form W-3. Substitute Forms W-3 are also permitted to be used according to specifications that are similar to those for substitute Forms W-2. See Form W-3 Reporting to the SSA.
- Form W-2c, Corrected Wage and Tax Statement, must be used to make any needed corrections to previously filed Forms W-2. Form W-3c, Transmittal of Corrected Wage and Tax Statements, must be sent to the SSA along with copies of Copy A of Form W-2c. Like Form W-2, Form W-2c has six copies that must be sent to the employee, the SSA and any state or local tax agencies by certain due dates. And like Form W-3, the W-3c includes the totals reported on all of the Forms W-2c being sent. See Correction Forms W-2c and W-3c.
- Employers must ensure that the information reported on Forms W-2, Wage and Tax Statement, and Forms 941, Employer's Quarterly Federal Tax Return, balance precisely. If they do not balance, it is imperative that the reason for the discrepancy be discovered and that any underpayment of tax is immediately corrected. This will avoid inquiries from the IRS, SSA and state and local taxing agencies, and the potential assessment of penalties. See Reconciliations.
- An employer with at least 50 full-time employees, including full-time equivalent employees, must report group health insurance offered to full-time employees and their non-spouse dependents. This information is reported to employees and the IRS on Form 1095-C, along with transmittal Form 1094-C. Small self-insured employers must complete and file Form 1095-B along with transmittal Form 1094-B. Insurers must file Form 1095-B and 1094-B to report the coverage for large and small employers and may provide the applicable form to employees. See Health Care Information Reporting.
- In addition to reporting compensation paid to employees, employers also must report to the IRS payments made to nonemployees, such as independent contractors, for services performed, and payments made to retirees from pension plans, among other types of payments. Most such payments are reported annually on the 1099 series forms. See Reporting Nonemployee Payments.
- An employer may be subject to penalties for failing to file information returns (Forms W-2, W-3, and 1099s) with the IRS or SSA on time or for filing them with incomplete or incorrect information. Similar penalties apply for failure to provide information statements to employees as required. See Penalties for Failure to Properly File Information Returns; Penalties for Failure to Provide Forms W-2 or 1099.
- Employers that file a certain number of Form W-2 (Copy A), Form 1099 or Form 1095-C must file them electronically. Employers that do not have the technological or financial ability to file electronically despite meeting the threshold can apply to the IRS for a hardship waiver. See Electronic Filing Requirements for Information Returns (Forms W-2, 1095-C and 1099).
- Although information returns submitted on magnetic media are no longer accepted by the SSA, in many states employers must file information returns either electronically or on magnetic media. Because individual state requirements vary widely, employers should check the rules of the states in which they operate to ensure compliance. See State Electronic and Magnetic Media Form W-2 Reporting Requirements.
- Special wage payments (SWPs) are payments made to current or former employees for amounts earned in one year but paid in a subsequent year. Employers need to notify the SSA about SWPs because of the effect they have on Social Security benefits received by those under age 65. See Reporting Special Wage Payments to the SSA.
The following states have additional requirements for this topic under applicable state law.
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