March 24, 2021
All businesses must file a number of payroll forms with the IRS in order to properly account for all income and taxes paid to and on the behalf of employees. Two of these forms, the IRS 940 and the IRS 941 are crucial. The first form is an annual form that reports the amount of unemployment tax paid by a company. The second is a form that contains the company’s quarterly tax returns, including the amounts of Federal Income Tax, Medicare Tax, and Social Security Tax, paid for each employee. Since some amounts are paid by the company on the employee’s behalf, there are payments that must accompany this form. Both forms play a crucial role in accounting for the amount of tax paid by a business, making it very problematic when they are incorrect.
Large and Small Payroll 941 Issues
The amounts of taxes that a company must pay and report to the IRS can be complicated. Not only do they need to report the amount of income paid to each employee, such as their standard compensation and any bonuses, but they also have to notify the IRS of how much that employee paid in Federal Income Tax, Social Security Tax, and Medicare Tax. Some of these tax amounts, like the Social Security and Medicare ones, are only partially paid by the employee. Half of what’s due to the IRS comes out of their paychecks. The company pays the other part of the taxes due for each worker on a quarterly basis. This is reported and paid along with the Payroll 941 form.
When things get under or over-reported and the company does not pay enough payroll taxes on behalf of their employees or do not take enough out of their paychecks (or even in some cases, takes too much and pays too much), problems can arise. These under payments to the IRS need to be corrected as soon as they are caught, or else the IRS will conduct an audit, levy fines, and insist on being paid the correct amount in a timely fashion. Obviously, overpayments must be corrected as well.
Problems with the Payroll 940 Form
As far as the Payroll 940 form is concerned, things are a little different, because that amount comes solely from the company. Employees do not pay this portion of the unemployment tax, although the amount that the company needs to pay is determined by their payroll.
If the amounts on this form are under-reported, then the business could be in trouble if they don’t take quick measures to correct the problem. This money eventually goes to the state in which the company operates and resides in order to fund their unemployment programs. Should the company not pay enough, it runs the risk of leaving this account underfunded, and the business could end up having to pay additional fines and penalties.
How to Resolve These Issues
The best way to resolve issues with Payroll forms 940 and 941 is to see a tax professional for guidance. Although you could contact the IRS yourself and file amended forms, it is not recommended that you do so. Working with someone who has experience in dealing with the IRS is an easier and more reliable way to solve the problem. They can inform you of what you need to do, fill out the amended forms for you, and send in the correct payment amount in order to remedy your situation. They have the experience and knowledge that it takes to resolve your problem.
What Happens If the Problem is Ignored?
Although resolving the issues can be quite complicated, nothing compares to the issues faced if you ignore the problem. When the IRS discovers that you have incorrectly reported your employee’s income or paid too little in payroll taxes, they will conduct an audit on your entire company. If they find any additional issues, you and your business could face a number of penalties and fines, as well as having to pay the full amount that the IRS determines is due. That is why it is important to not only fill in these forms correctly and send in the proper payment to cover any taxes due but to also make any corrections on a timely basis, before the IRS decides that an audit is required. Admitting fault and fixing the problem goes a long way.
If your company has erroneously filed incorrect information on its IRS 940 and 941 forms, then you need to reach out to the tax advisors at Enterprise Consultants Group. We can answer your questions, discuss your rights, and provide actionable options. Please contact us online or at (800) 575-9284 today to schedule a free and confidential consultation to see how we can help you.
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