As a small business owner or operator, you probably already know that 941 time comes around four times a year. It next comes around on January 31.
Form 941 reports wages your company has paid and federal income tax withheld from employees during the period. It also notes Social Security and Medicare (FICA) taxes withheld, and your company’s share of those Social Security and Medicare taxes.
As is the case with any tax matter, you should always consult a professional for competent advice and planning. But independent of those discussions, here are five things to know.
1. Quarterly 941 Filing and Payment Dates Change Each Year
But not by very much. The form, and any payments due, must be filed by the last day of the month after the end of the quarter. For example, the 941 form for the second quarter (April/May/June) must be filed by July 31. If the due date falls on a Saturday, Sunday or holiday, the filing date becomes the next business day.
For planning purposes, upcoming 941 due dates are:
- Friday, January 31, 2014
- Wednesday, April 30, 2014
- Thursday, July 31, 2014
- Friday, October 31, 2014
- Thursday, January 31, 2015
Quarterly tax payments are due with the form.
2. Once You Get the Hang of it, it’s Just Part of Your Routine
There are things you can do to make the 941 process less of a burden.
- Hire a payroll service to handle the 941 filing and payment chores for your business.
- If your company is still growing and you’re the do-it-yourself type, you can use one of several off-the-shelf tax planning software programs for growing businesses. This should not take the place of competent tax planning advice from a qualified adviser, but at least you’ll know how much you owe and when you need to pay it.
- If possible, consider depositing funds for 941 payments into an account separate from your other business and checking accounts. If you do this diligently, you should always have enough on hand to make payments on the due date.
3. Penalties for Filing Late are Severe
Penalties for not filing your 941 forms and not making the attendant payments on-time are, well, not trivial.
- Just for filing late, your company can be penalized by the IRS. The fines start at 5% of the tax due, but can increase up to 25% of that amount.
- For late payments, your business can be charged .05% per month of the amount due, but this fine can also escalate to 25% of the tax owed.
In addition to the 941 payroll tax penalties the IRS can impose interest charges on any taxes owed. The interest is compounded daily, and calculated at the federal short term interest rate, plus 3 percentage points.
Interest starts accumulating the day the taxes are due, so try to pay off the obligation as soon as you can.
4. You Need to File 941 Payments Electronically
IRS regulations require that you file your 941 payments electronically. Even if you’re not the tech-type, the electronic filing process can actually reduce the amount of paperwork you encounter when filing.
Besides, filing electronically – assuming you’re inputting the correct information – can help you avoid potentially costly errors.
Form 941 filings include information for:
- The number of employees and total wages for the period being reported
- Amounts withheld from pay
- The period’s total Social Security and Medicare wages
- The period’s total taxable Social Security and Medicare wages
- Any adjustments for tips, sick pay, and other miscellaneous wages
So there’s a lot to keep track of. Electronic filing should help you manage the numbers more effectively.
5. Effective Cash Flow Management can Make 941 Payment Time Easier
Of course, you need to make sure you have enough cash in the bank to enable you to make your 941 payments when they’re due. Scrambling at the last minute to make sure you can pay is distracting and emotionally draining.
Most growing companies encounter cash flow management problems at one time or another. Review these tips on effective cash management to give your company an edge.
If cash flow problems are consistent, you need to review your processes to figure out why you’re always struggling. Many companies have introduced an invoice factoring arrangement to help them more accurately forecast their cash flow situations and get paid on invoices more quickly. Contact MP Star Financial for more information.
