How to Prepare Payroll Tax Returns

Report wages and tax withholdings on Form 941.

Employers must file Form 941, Employer's Quarterly Federal Tax Return, for each calendar quarter with the Internal Revenue Service. The filing deadline is the last day of the month following the end of the calendar quarter. For example, for the quarter ended March 31st, Form 941 must be filed by April 30th. Form 941 reports wages paid to employees, federal income tax withholding and the employer and employee portions of Social Security and Medicare tax.

Things You'll Need

• Form 941

Instructions

1. Complete the business identifying information at the top of Form 940. Indicate the calendar quarter Form 941 is being filed for on the top right-hand side of the form. Enter the business name and employer identification number at the top of page 2.

2. Enter the number of employees who received wages at any point in time for the calendar quarter in box 1. In box 2, enter the total wages paid to these employees. Indicate the total federal withholding taxes withheld from employee wages in box 3.

3. Record taxable Social Security wages and tips in boxes 5a and 5b, respectively. Social Security is only withheld on the first $106,800 of an employee's wages. Wages and tips in excess of $106,800 are not subject to Social Security. Perform the calculation for boxes 5a and 5b to determine the total Social Security tax.

4. Enter taxable Medicare wages and tips in box 5c. Unlike the wage cap on taxable Social Security wages and tips, an employee's total wages and tips are subject to Medicare tax. Perform the calculation for box 5c to determine the total Medicare tax.

5. Calculate the total of column 2 for boxes 5a, 5b and 5c to determine total Social Security and Medicare wages to be remitted. Enter the total in box 5d. This total represents the Social Security and Medicare tax withheld from the employee's wages plus the employer's matching portion of Social Security and Medicare tax.

6. Complete boxes 6a and 6b if you have employees exempt from Social Security tax withholding. If you are an employer who is exempt from remitting the employer's portion of Social Security tax, complete box 6c. Employees exempt from Social Security withholding must complete Form W-11, Hiring Incentives to Restore Employment Act Employee Affidavit, or similar affidavit verifying they were not employed for more than 40 hours during the 60 days prior to hire.

7. Enter the total exemptions from boxes 6a through 6c in box 6d. Add lines 3 and 5d and subtract box 6d. Enter the total in box 6e. Record adjustments for fractions of cents, sick pay and tips and group term life insurance in boxes 7a through 7c. Fractions of cents relates to rounding. If entering a downward rounding adjustment, record a minus sign before the dollar value.

8. Combine boxes 6e through 7c and enter the result in box 8. If advanced earned income credit payments were made to employees, enter the amount in box 9. Employees eligible for the earned income credit must complete Form W-5 which the employer must retain on file. Subtract box 9 from box 8 and enter the result in box 10.

9. Enter the total tax payments made during the quarter in box 11. If you had prior period over-payments to apply to the current quarter, include the overpayment in box 11. If an employer had employees who received assistance with COBRA payments, the employer can report 65 percent of these payments on Form 941 in boxes 12a and 12b. These assistance payments are treated as tax deposits made by the employer.

10. Complete boxes 12c through 12e only for the second quarter of 2010. These boxes relate to employees receiving wages exempt from Social Security tax. Similar to the treatment of COBRA assistance payments, the Social Security tax adjustment is treated as tax deposits made by the employer. Enter the total of boxes 11, 12a and 12e in box 13. This represents total tax deposits made by the employer for the quarter.

11. Compare box 10, total tax liability for the quarter, with box 13, total tax deposits made for the quarter. If box 10 is greater than box 13, subtract box 13 from box 10 to determine the balance due and enter in box 14. If box 10 is less than box 13, subtract box 10 from box 13 to determine the overpayment and enter in box 15. Decide if you want to receive a refund of the overpayment or apply the overpayment to the next quarter's tax liability and check the appropriate box.

12. Enter the two-letter abbreviation for the state where you make federal tax deposits in box 16 on page 2 of Form 940. Check the appropriate section of box 17 for how you make tax deposits. If applicable, enter the monthly tax liability in the area provided. Sign and date Form 940 in section five. File by the due date and remit payment with the return to avoid penalties and interest.