What is Form 941 and Which Businesses are Required to File it?

Regardless of the size of your business, as the owner, there is an endless list of tasks that you must keep track of. Even if you are running a small business with a few employees, you have a lot of daily demands to stay ahead of.

One of the heaviest burdens to carry can be your IRS requirements. Knowing which forms are required by the IRS, SSA, and your own state can be overwhelming.

Quarterly payroll filing can be one of the most difficult IRS obligations to keep up with. When business is booming, the quarters tend to fly by.

This is a helpful overview of Form 941 to help both new and growing businesses understand this form and its filing requirements.  

Which Businesses are Required to File Form 941?

The simple, uncomplicated answer to this question is most employers. If you pay your employees wages and withhold social security, Medicare, and income taxes from their paychecks.

While there are some exceptions such as household employees and agricultural workers, this means that most businesses are required to meet this quarterly filing requirement with the IRS.

Does a Business need to file 941 Every Quarter?

The answer for the majority of businesses that are required to file Form 941 is yes. Once your business files its first Form 941, it will be required to file quarterly as long as the business is operational.

The main exception to this rule is seasonal employers. For example, if your business is based in the summer months and closed for the rest of the year, you are only required to file for the quarter that the business was open and paying wages.

How Should a Business Handle Form 941 Filing when Closing?

In the event that a business closes, it is important that they file a final Form 941. On Form 941 they will check a box to indicate the business has closed. They will also need to indicate the last date that wages were paid to employees.

Information Needed to E-file Form 941

Now that we’ve covered what businesses are required to file, let’s break down the information you will need in order to sit down and file successfully for your business. You will need to have a record of the following information:

  • Wages paid
  • Tips that your employees reported to you (if applicable)
  • Federal Income tax you withheld from your employees’ paychecks
  • The employer and employee share social security and Medicare taxes
  • Qualified small business tax credit for researching activities
  • Deposit schedule information (ex. Are you a semi-weekly depositor?)
  • Nonrefundable and refundable portions of qualified sick and family leave wages claimed in previous quarters only.

Are COVID-19 Tax Credits Available for Q1 of 2023?

No, like last quarter (Q4 of 2022), there are no credits available for employers to claim. Although, employers may need to report credits claimed for wages in previous quarters when they were available.

Will Employers Need 941 Worksheets to Complete 941 for Q1?

It is possible that some employers may need worksheets this quarter if they are claiming credits from past quarters.

These are necessary for employers that need to calculate and claim credits for applicable wages paid in previous quarters. These are the worksheets for the first quarter of 2023:

●     Worksheet 1. Credit for Qualified Sick and Family Leave Wages Paid This Quarter of 2023 for Leave Taken After March 31, 2020, and Before April 1, 2021

●     Worksheet 2. Credit for Qualified Sick and Family Leave Wages Paid This Quarter of 2023 for Leave Taken After March 31, 2021, and Before October 1, 2021

Are there any Updates on Form 941 for Q1, 2023?

Yes, there are a few minor changes. The first line of the form has been updated to include the pay period (March 12th) for the first quarter. There has also been a slight change to Line 5 for the 2023 tax year.

There have been updates to the wage base limit for social security, this amount is  $160,200 for the 2023 tax year.

There have also been some updates to Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities. Employers can attach this form to their Form 941 to claim the tax credits.

For the tax years after December 31, 2022, the Inflation Reduction Act of 2022 increases the amount that can be claimed from $250,000 to $500,000. Beginning in 2023, the credit will first reduce the employer’s share of social security up to $250,000 per quarter, and any remaining credit will be applied to the Medicare tax.

What is the Best Method for Filing Form 941?

The best option when it comes to how to file Form 941 is e-filing. While the IRS will accept paper copies of Form 941 that are mailed in, they prefer forms that are filed electronically. Processing these forms is easier for them, and tracking the status of these forms is easier for you. When you mail a paper form to the IRS, there will be no confirmation that they received the form, and processing could take a very long time.

Choosing an IRS-authorized e-file provider is the way to go when it comes to e-filing. These are the only providers that have access to the IRS e-file system and can transmit your forms securely. It is important to do some research to find the provider that offers the features that will best suit your needs.

Hopefully, this guide has been helpful, and you feel ready to tackle your next quarterly Form 941 deadline with the IRS!

About Carson Derrow

My name is Carson Derrow I'm an entrepreneur, professional blogger, and marketer from Arkansas. I've been writing for startups and small businesses since 2012. I share the latest business news, tools, resources, and marketing tips to help startups and small businesses to grow their business.