- 21.7.2.4 Employment Tax Returns Procedures
- 21.7.2.5 Specific Claims and Other Issues
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For errors discovered prior to January 1, 2009, taxpayers were instructed to adjust a prior period on a current period's return. This could result in the current period's tax liability being a negative amount.
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Taxpayers could submit a return reporting a credit that reduced an existing tax liability below zero.
Note:
Current programming allows for a tax adjustment to be input to reduce an existing liability below zero. However, if the tax liability is being reduced to a negative amount, any FTD penalty must be manually adjusted. See IRM 20.1.4.23, Manual Adjustments.
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A taxpayer may disagree with a notice of additional tax assessment due to an error or discrepancy on Form 941 and submit a Form 941-X citing any of the following as probable cause(s):
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Transposition of figures
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Entry made on wrong line
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Omission of allowable adjustment
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Error in computation of tax
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Erroneous withholding tax or wages reported on Form 941
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Do the following:
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Review taxpayer’s statement and return to determine if adjustment action is necessary.
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If so, compute the amount of adjustment and input TC 291 for amount of decrease along with appropriate IRN(s).
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Taxpayer must submit Form 941-X when there is a change to wage/withholding amounts reported on an original return and it involves a prior tax year. For current quarters, the taxpayer can submit a faxed signed statement requesting a reporting error on the Form 941 be corrected. Accept this information over the phone and make adjustments to the TP's account if a signed statement can be received by fax supporting the change. If the TP is unable to fax a statement (you must request he fax the statement if the TP phones in), have him respond with a copy of the notice indicating corrections needed to the original return.
Example:
Taxpayer receives a CP 102 for 200809 indicating he owes an additional $612 in tax. The TP reviewed their original Form 941 and discovered that the wages reported were overstated by $4,000. Have the taxpayer fax a signed statement indicating the SS and Medicare wage corrections that need to be made, and adjust the TP's account accordingly. If they are unable to fax the information, instruct the TP to mail in the Form 941-X with a copy of the notice they received. Input STAUPS for six cycles to allow the TP time to respond to the notice. The same applies to overpayment notices (example: CP 112).
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Beginning with the first quarter of 2010, a Schedule R (Form 941): Allocation Schedule for Aggregate Form 941 Filers (and continuation sheets as needed), must be completed and attached each time an aggregate Form 941 is filed by an approved agent (as defined by IRC 3504).
Note:
To request authorization to act as an agent for an employer, Form 2678, Employer/Payer Appointment of Agent, must be filed with the Service. See IRM 21.7.2.3.7, Fiscal/Employer Agents Operating in Accordance with IRC Section 3504, IRM 21.7.2.4.11.3, Household Employment Taxes and Section 3504 Fiscal/Employer Agents, and IRM 3.13.2.16, Form 2678, Employer/Payer Appointment of Agent, for more information.
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Schedule R (Form 941) is used to allocate the aggregate information reported on Form 941 to each client. If there are more than 15 clients, continuation pages should be completed as necessary. Schedule R (Form 941) and any continuation pages must be attached to the aggregate Form 941, when filed. When a Form 941 is processed and a Schedule R (Form 941) is attached, a Schedule R Indicator (SRI) will be posted to MF.
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If a taxpayer has filed a Schedule R (Form 941) with his original return and he needs to correct the previously filed Form 941, then a revised Schedule R (Form 941) should be submitted with the Form 941-X. However, when processing a Form 941-X for an aggregately filed Form 941, (regardless if a Schedule R indicator is present) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .
Note:
If a TP is required to file a Schedule R (Form 941) and does not do so with his original return, he may submit another Form 941 with a Schedule R (Form 941) attached which may create a TRNS 193. If so, follow existing procedures in IRM 21.7.9, BMF Duplicate Filing Conditions.
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The chart below indicates procedures for most Schedule R inquiries:
If And Then Loose Schedule R is received The original return has posted (regardless if a Schedule R indicator is present) No additional action is needed. Note:
If working a CIS case, add a case note to identify what was received and close the CIS case.
Loose Schedule R is received The original return has not posted and the original processing time for Form 941 has not elapsed Suspend loose schedule pending posting of original return. Loose Schedule R is received The original return has not posted and the original processing time for Form 941 has elapsed Contact taxpayer, preferably by phone, to obtain a signed copy of the original return and suspend case for 40 days. -
If taxpayer replies with a copy of the original return, process accordingly.
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If the taxpayer does not reply, reject the Schedule R back to the taxpayer requesting the original Form 941 (and accompanying Schedule R) be filed.
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Form 941-X (or Form 941-X (PR)) is filed to correct income tax withholding and/or FICA tax information previously reported on Form 941 or Form 941-SS (or Form 941-PR). Taxpayers can choose to file either:
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An adjusted employment tax return, or
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A claim
Note:
If the taxpayer does not check a box in Part 1 (or checks both boxes) and the Form 941-X reflects a tax decrease, make two attempts to contact the taxpayer by phone (if a telephone number is available) to determine whether they intended to follow the adjustment process or the claim process. If unable to contact the taxpayer by phone, verify which set of certification box(es) were checked. If the taxpayer checked the adjustment certification(s) or checked both the adjustment certification(s) and the claim certification(s), process as an adjusted employment tax return. If the taxpayer checked only the claim certification(s), process as a claim for refund.
Reminder:
When contacting the taxpayer or authorized representative, follow taxpayer authentication guidelines in IRM 21.1.3.
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Taxpayers are required to certify on Form 941-X that they have filed or will file Forms W-2, or Forms W-2c, as required. They must also complete the applicable certification box based on their selection in Part 1 of Form 941-X.
Example:
If TP checks box 1 in Part 1, then they must check the applicable certification box(es) in line 4. If TP checks box 2 in Part 1, then they must check the applicable certification box(es) in line 5.
Note:
If the TP checks an incorrect certification box based on the information in Part 1, continue processing the claim based on the information provided in Part 1.
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Use the applicable reference numbers to adjust tax, wages, and advance earned income tax credit (AEITC) on employment tax returns. The following table shows the valid reference numbers for Form 941-X.
Item Reference Number (IRN) Explanation 111 Income tax withheld from wages, tips, and other compensation (line 7 of Form 941-X - column 4). 004 Taxable social security wages (line 8 of Form 941-X - column 3). 005 Taxable social security tips (line 9 of Form 941-X - column 3). 073 Taxable Medicare wages and tips (line 10 of Form 941-X - column 3). 112 Total social security and Medicare tax (total of lines 8, 9, & 10 of Form 941-X - column 4). 114 Section 3121(q) Notice and Demand — Tax due on unreported tips (line 11 of Form 941-X - column 4). Only for MFT 01 tax periods 201103 and after. 115 Exempt wages/tips paid to qualified employees this quarter (line 12c of Form 941-X - column 3). For MFT 01, tax periods 201006, 201009, and 201012 only. 116 Taxes on exempt wages/tips paid to qualified employees this quarter (line 12c of Form 941-X - column 4). For MFT 01, tax periods 201006, 201009, and 201012 only. 104 Income tax withheld figured at IRC Section 3509 tax rate on Special addition to wages for federal income tax (line 14 of Form 941-X - column 4). 105 Social security and Medicare taxes figured at IRC Section 3509 tax rates on Special addition to wages for social security taxes and Special addition to wages for Medicare taxes (lines 15 and 16 from Form 941-X - column 4). 106/107/108 Tax adjustments (line 13 of Form 941-X - column 4). See IRN 113 and Note below table. 113 Total adjustments (total of lines 13, 14, 15, and 16 of Form 941-X - column 4). See IRN 106/107/108 above and Note below table. Reminder:
IRN 113 must be used when adjusting IRNs 104 through 108.
117 Exempt wages/tips paid to qualified employees March 19 - 31 (line 19d of Form 941-X - column 3). Note:
For MFT 01, this credit can only be claimed on tax period 201006.
Credit Reference Number (CRN) 766/767 Advance earned income tax credit (AEITC) (line 18 of Form 941-X - column 4). Note:
AEITC has been legislatively eliminated for tax periods after 201012.
299 COBRA premium assistance payments (line 19a of Form 941-X - column 4). 296 Refundable tax credit on exempt wages/tips paid to qualified employees March 19 - 31 (line 19d of Form 941-X - column 4). Note:
For MFT 01, this credit can only be claimed on tax period 201006.
Note:
Use Item reference numbers 106, 107, and 108 to adjust any corrections a taxpayer may have for lines 7, 8, and 9 on Form 941. If Form 941-X does not specify what is actually being corrected, use IRN 107 for total amount on line 11 - column 4. See IRM 21.7.2.4.1 for additional information on IRN's.
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These tax decreases involve income tax withholding and/or FICA tax.
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Verify all required items on Form 941-X are complete, such as:
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Name, address, and EIN
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Type of return being corrected
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Quarter being corrected
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Calendar year being corrected
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Part 1 Box 1 is checked
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Applicable certification is checked on line 4a, 4b or 4c
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Detailed explanation
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Signature
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If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.
Caution:
The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.
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If a taxpayer files an adjusted employment tax return within 90 days of the expiration of the Period of Limitations, the adjustment must be converted to a claim for refund and the taxpayer must be notified.
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To convert an adjustment to a claim, notate the following remarks on the Form 941-X:
"90 day - Claim." -
Generate Letter 4384C to the TP explaining the adjustment has been converted to a claim.
Note:
See IRM 21.7.2.4.7.8.2 to process a claim as a refund and refer to IRM 21.7.2.4.6.5 for additional information on 90 day - Claims.
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A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A) — General, for additional information.
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Math verify adjustments to income tax, social security tax, and Medicare tax.
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Do the following:
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Input TC 291, HC 1, BS 20 and the appropriate IRN's for the amount of decrease.
Note:
Overpayments arising from adjustments made under these procedures are subject to offset. Omit Hold Code 1 with the adjustment and allow the computer to systemically offset the credit if it will be fully absorbed by an outstanding balance due. Otherwise, if conditions prevent the computer from completing the offset, or if only part of the credit needs to be offset, manual offsets using TC 820/TC 700 transactions will be required.
Caution:
For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5.
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Transfer the applicable overpayment using TC 830/710 to the period in which the Form 941-X was filed.
Caution:
To prevent interest from generating, use the later of the return due date of the tax period being adjusted or the availability date of the overpayment as the transaction date of the TC 830 and use the due date of the return the credit is being applied to as the transaction date of the TC 710. See IRM 21.5.8.4.3(3), Determining Correct Credit Transfer Format, for more information.
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If the entire credit is not available to be transferred, generate Letter 4384C to the taxpayer. Explain why the entire amount was not allowable (for example, there was a balance due on the tax period being adjusted or the credit is being offset to a balance due on another tax period).
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If the taxpayer's filing requirement has changed from Form 944 to Form 941 or vice versa, the credit will be transferred to the filing requirement that was active for the period in which the adjusted return was filed. In the majority of these cases, this will be the taxpayer's current open filing requirements, but not always.
Example:
Taxpayer filed Form 941-X in September 2011 for adjustment to a Form 941 in 2009. Taxpayer's filing requirement for 201112 is Form 944; however, current open filing requirement is Form 941 since taxpayer opted out of Form 944 for TY 2012. The credit will be applied to 201112 MFT 14 module, since that is the tax period in which adjusted return was filed.
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These tax decreases involve income tax withholding, FICA tax, and/or AEITC.
Note:
AEITC has been legislatively eliminated for tax periods after 201012.
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Verify all required items on Form 941-X are complete, such as:
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Name, address, and EIN
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Type of return being corrected
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Quarter being corrected
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Calendar year being corrected
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Part 1 Box 2 is checked
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Applicable certification is checked on line 5a, 5b, 5c or 5d
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Detailed explanation
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Signature
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If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.
Caution:
The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.
Exception:
Claims filed without consent. If taxpayer has not checked a box on line 5 and states (in the explanation or in response to our contact) they are not required to obtain the consents prior to filing the claim and the claim is ≡ ≡ ≡ ≡ ≡ ≡ ≡ , send claim CAT-A. Exam will correspond with the taxpayer to secure applicable certifications. In certain situations, taxpayers may not have repaid or reimbursed their employees or obtained their consents prior to filing a claim (Form 941-X). However, they must certify they have repaid or reimbursed their employees or obtained consents before the Service can accept the claim. See Instructions for Form 941-X for more information.
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A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A) — General, for additional information.
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Math verify adjustments to income tax withholding, social security tax, and Medicare tax.
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Input TC 291, BS 20 and the appropriate IRN's for the amount of the decrease.
Caution:
For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5.
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If the entire credit is not available to be refunded to the taxpayer, generate Letter 4384C to the taxpayer explaining the discrepancy.
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These tax increases involve income tax withholding and/or FICA tax.
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Verify all required items on Form 941-X are complete.
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Check for the date the taxpayer discovered the error. If not entered on page 1, review the explanation to see if it was entered there.
Note:
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , if the ascertained date is not provided and a telephone number is available, make two attempts to contact the taxpayer by phone to obtain the information. If the ascertained date cannot be obtained by phone, input the adjustment as a TC 290.
Exception:
If you receive a Form 941-X for the immediately preceding quarter prior to the due date for the current quarter (for example, a Form 941-X reporting a tax increase for the second quarter of 2011 received on or before October 31, 2011), it is not necessary to contact the taxpayer for an ascertained date. In that situation, input a TC 298 with the applicable interest computation date. See IRM 21.7.2.4.6.2, Interest Free Adjustments (Employment Tax Returns), for more information.
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Math verify adjustments to income tax withholding, social security tax, and Medicare tax.
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Use the table below to make your adjustment(s).
If Then Return is filed by the ascertained date (due date of the return for the period in which the taxpayer discovered the reporting error) Input TC 298 and BS 20 with the correct interest computation date (INTCMP-DT). See IRM 21.7.2.4.6.2 and example below for additional information. Return is not filed by the due date of the return for the return period in which the error was ascertained or "date you discovered errors" was blank or the date error was discovered was not furnished in Part 4 Input TC 290 with BS 20. Example:
An employer discovers an error on February 1, 2011 and files a Form 941-X which is received by the IRS on March 1, 2011 for the 01/200912 tax period. The interest computation date would be March 1, 2011.
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Adjust the FTD penalty when using either a TC 290 (See IRM 20.1.4.21.3) or a TC 298 (See IRM 20.1.4.21.5).
Note:
See IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X), when using a TC 298 or TC 291 and an amended ROFT was provided with the adjusted return.
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Be sure any payments are credited to period(s) where the tax is being assessed.
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Form 943 is filed on a calendar year basis to report income tax withheld and employer and employee FICA taxes on farm workers. The return is due on or before January 31 of the year following the end of the calendar year.
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Employers with household employees who work in a private home on a farm operated for profit can either:
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File Schedule H with their Form 1040 series return and report the household employees portion of wages and taxes, or
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Include the wages and taxes with other farm employees on Form 943.
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The Form 943 threshold for making deposits is $2,500.
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All cash wages paid to farm workers are subject to FICA and income tax withholding during the year, if either of the two tests below are met:
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Cash and non-cash wages paid during the year to all employees totals $2,500 or more
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Annual cash wages of $150 or more are paid to an employee (This test is applied separately to each farm worker.)
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Cash wages paid to a farm worker who receives less than $150 during the year are not subject to FICA and income tax withholding, even if the total paid to all employees exceeds $2,500 or more, if the farm worker:
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Is employed as a hand-harvest laborer
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Is paid piece-rates in an operation usually paid on a piece-rate basis in the region of employment
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Commutes daily from his/her permanent home to the farm, and
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Had been employed in agriculture less than 13 weeks in the preceding calendar year
Note:
Amounts paid to these farm workers, however, count toward the $2,500 or more test for determining the social security and Medicare liability regarding other farm workers.
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Cash wages paid to a household worker are not counted in the $2,500 test and are not subject to FICA taxes unless the worker is paid cash wages at least equal to the threshold established by the Social Security Domestic Employment Reform Act of 1994 (SSDERA) for that particular year. For tax years 2009 through 2011, that threshold was $1,700. Thresholds for prior years may be found in IRM 21.7.4.4.1.11.1(3) or in the Pub 926, Household Employer's Tax Guide, for the year in question.
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There are instances where taxpayer files one type of return but should file another. The most common cases are agricultural employers who file Forms 941, but should file Form 943.
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When a taxpayer files Forms 941 for one or more quarters of a tax year but should have filed an annual Form 943, take the following actions to resolve the accounts:
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Research taxpayer’s account to locate all deposits claimed.
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When necessary, contact taxpayer to determine which return must be filed.
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Adjust the quarterly Form 941 accounts to remove tax using TC 291 and the appropriate IRN's.
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Input credit transfers to move FTD's or other credits from Form 941 accounts to the Form 943 account as appropriate.
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Input CC BNCHG to delete the Form 941 filing requirement.
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If you have the taxpayer's Form 943 and it is not already on file, route it for processing. Otherwise, instruct the taxpayer to file a Form 943 (if not already on file) when closing the case.
Example:
A taxpayer files Form 941 for the 201003, 201006, and 201009 quarters and makes deposits for these accounts. At the end of the year, the taxpayer files Form 943 for 201012 and claims deposits made during the year which triggers a balance due notice. The taxpayer responds to the notice and verifies they are an agricultural employer. In that situation, we would back the tax off the 201003, 201006, and 201009 Form 941 accounts, transfer all credits on MFT 01 for 2010 to MFT 11, and correct the filing requirements as necessary.
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Form 943-X (or Form 943-X (PR)) is filed to correct income tax withholding and/or FICA tax information previously reported on Form 943 or Form 943-PR. Taxpayers can choose to either file:
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An adjusted employment tax return, or
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A claim
Note:
If the taxpayer does not check a box in Part 1 (or checks both boxes) and the Form 943-X reflects a tax decrease, make two attempts to contact the taxpayer by phone (if a telephone number is available) to determine whether they intended to follow the adjustment process or the claim process. If unable to contact the taxpayer by phone, verify which set of certification box(es) were checked. If the taxpayer checked the adjustment certification(s) or checked both the adjustment certification(s) and the claim certification(s), process as an adjusted employment tax return. If the taxpayer checked only the claim certification(s), process as a claim for refund.
Reminder:
When contacting the taxpayer or authorized representative, follow taxpayer authentication guidelines in IRM 21.1.3.
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Taxpayers are required to certify on Form 943-X that they have filed or will file Forms W-2, or Forms W-2c, as required. They must also complete the applicable certification box based on their selection in Part 1 of Form 943-X.
Example:
If TP checks box 1 in Part 1, then they must check the applicable certification box(es) in line 4. If TP checks box 2 in Part 1, then they must check the applicable certification box(es) in line 5.
Note:
If the TP checks an incorrect certification box based on the information in Part 1, continue processing the claim based on the information provided in Part 1.
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Item Reference Numbers (IRNs) valid for Form 943-X are: 003, 004, 007, 073, 184 (tax periods through 200812 only), and 185. Also, IRNs 115, 116, and 117 are valid for tax period 201012 HIRE credit related adjustments.
Caution:
For tax periods after 200812, IRN 185 is only used on Form 943 adjustments for fractions of cents and third party sick pay.
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Credit Reference Numbers (CRNs) valid for Form 943 are: 766/767 (AEITC increase/decrease), valid for tax periods 201012 and prior; CRN 299 (COBRA refundable credit), valid for tax periods 200912 and subsequent; and CRN 296 (HIRE refundable credit), valid for Form 943 tax period 201012 only.
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These tax decreases involve income tax withholding and/or FICA tax.
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Verify all required items on Form 943-X are complete, such as:
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Name, address, and EIN
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Calendar year being corrected
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Part 1 Box 1 is checked
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Applicable certification is checked on line 4a, 4b or 4c
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Detailed explanation
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Signature
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If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.
Caution:
The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.
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If a taxpayer files an adjusted employment tax return within 90 days of the expiration of the Period of Limitations, the adjustment must be converted to a claim for refund and the taxpayer must be notified.
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To convert an adjustment to a claim, notate the following remarks on the Form 943-X:
"90 day - Claim." -
Generate Letter 4384C to the TP explaining the adjustment has been converted to a claim.
Note:
See IRM 21.7.2.4.8.3.2 to process claim as a refund and refer to IRM 21.7.2.4.6.5 for additional information on 90 day - Claims.
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A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A), for additional information.
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Math verify adjustments to income tax withholding, social security tax, and Medicare tax.
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Do the following:
-
Input TC 291, HC 1, BS 20 and the appropriate IRN's for the amount of decrease.
Note:
Overpayments arising from adjustments made under these procedures are subject to offset. Omit Hold Code 1 with the adjustment and allow the computer to systemically offset the credit if it will be fully absorbed by an outstanding balance due. Otherwise, if conditions prevent the computer from completing the offset, or if only part of the credit needs to be offset, manual offsets using TC 820/TC 700 transactions will be required.
Caution:
For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5.
-
Transfer the applicable overpayment using TC 830/710 to the period in which the Form 943-X was filed.
Caution:
To prevent interest from generating, use the later of the return due date of the tax period being adjusted or the availability date of the overpayment as the transaction date of the TC 830 and use the due date of the return the credit is being applied to as the transaction date of the TC 710. See IRM 21.5.8.4.3(3), Determining Correct Credit Transfer Format, for more information.
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If the entire credit is not available to be transferred, generate Letter 4384C to the taxpayer. Explain why the entire amount was not available (for example, there was a balance due on the tax period being adjusted or the credit is being offset to a balance due on another tax period).
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These tax decreases involve income tax withholding, FICA, and/or AEITC.
Note:
AEITC has been legislatively eliminated for tax periods after 201012.
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Verify all required items on Form 943-X are complete, such as:
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Name, address, and EIN
-
Calendar year being corrected
-
Part 1 Box 2 is checked
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Applicable certification is checked on line 5a, 5b, 5c or 5d
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Detailed explanation
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Signature
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If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.
Caution:
The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.
Exception:
Claims filed without consent. If taxpayer has not checked a box on line 5 and states (in the explanation or in response to our contact) they are not required to obtain the consents prior to filing the claim and the claim is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , send claim CAT-A. Exam will correspond with the taxpayer to secure applicable certifications. In certain situations, taxpayers may not have repaid or reimbursed their employees or obtained their consents prior to filing a claim (Form 943-X). However, they must certify they have repaid or reimbursed their employees or obtained consents before the Service can accept the claim. See Instructions for Form 943-X for more information.
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A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A), for additional information.
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Math verify adjustments to income tax, social security tax, and Medicare tax.
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Input TC 291, BS 20 and the appropriate IRN's for the amount of the decrease.
Caution:
For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5.
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If the entire credit is not available to be refunded to the taxpayer, generate Letter 4384C to the taxpayer explaining the discrepancy.
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These tax increases involve income tax withholding and/or FICA tax.
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Verify all required items on Form 943-X are complete.
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Check for the date the taxpayer discovered the error. If not entered on page 1, review the explanation to see if it was entered there.
Note:
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , if the ascertained date is not provided and a telephone number is available, make two attempts to contact the taxpayer by phone to obtain the information. If the ascertained date cannot be obtained by phone, input the adjustment as a TC 290.
Exception:
If you receive a Form 943-X for the immediately preceding tax year prior to the due date for the current tax year (for example, a Form 943-X reporting a tax increase for tax year 2009 received on or before January 31, 2011), it is not necessary to contact the taxpayer for an ascertained date. In that situation, input a TC 298 with the applicable interest computation date. See IRM 21.7.2.4.6.2, Interest Free Adjustments (Employment Tax Returns), for more information.
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Math verify adjustments to income tax withholding, social security tax, and Medicare tax.
-
Use the table below to make your adjustment(s).
If Then Return is filed by the due date of the return for the period in which the taxpayer discovered the reporting error Input TC 298 and BS 20 with the correct interest computation date (INTCMP-DT). See IRM 21.7.2.4.6.2 and example below for additional information. Return is not filed by the due date of the return for the return period in which the error was ascertained or "date you discovered errors" was blank or the date error was discovered was not furnished in Part 4 Input TC 290 with BS 20. Example:
An employer discovers an error on February 1, 2011 and files a Form 943-X which is received by the IRS on March 1, 2011 for the 11/200912 tax period. The interest computation date would be March 1, 2011.
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Adjust the FTD penalty when using either a TC 290 (see IRM 20.1.4.21.3) or a TC 298 (see IRM 20.1.4.21.5).
Note:
See IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X), when using a TC 298 or TC 291 and an amended ROFT was provided with the adjusted return.
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Be sure any payments are credited to period(s) where the tax is being assessed.
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Form 944 is the annual employment tax return for small employers. Instead of filing quarterly tax returns (Form 941), certain employers now file an annual tax return (Form 944). To qualify for the program one of the following must apply:
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The taxpayer is a new employer who expects to have less than $1,000 in employment tax liability for the calendar year, or
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Taxpayer filed Form 944 for the prior year and reported $1,000 or less in total tax liability.
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If the Service determined an employer was qualified, it would send a notification letter to the employer. If an employer received notification to file Form 944, the employer must file Form 944 to report its social security, Medicare, and withheld federal income taxes for the calendar year unless the employer timely contacted the Service to request to file Form 941 quarterly instead (to opt out) and received written confirmation that its filing requirement was changed
Reminder:
For employers in the U.S. possessions, generally if you pay $6,536 or less in wages subject to social security and Medicare taxes, you are likely to pay $1,000 or less in employment taxes.
Note:
For tax years 2006 thru 2008, Form 944 taxpayers were identified via an eligibility extract. Beginning with tax year 2009 and subsequent, the eligibility extract will no longer be run to identify eligible Form 944 taxpayers. For these tax years, taxpayers will either self-identify during EIN assignment or contact the Service directly inquiring about the Form 944 program.
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Beginning with tax year 2010, employers that would otherwise be required to file Form 944 can notify the Service if they want to file quarterly Forms 941 instead of annual Form 944. See Rev. Proc. 2009-51. Previously, the Form 944 program was mandatory and taxpayers could only opt out for very limited reasons. For tax years beginning January 1, 2010, Rev. Proc. 2009-51 expands the opt-out eligibility by allowing employers to opt out of the Form 944 program for any reason. Under the prior rules for tax years 2006, 2007, 2008, and 2009, employers who were qualified to file Form 944 could only opt out (i.e., request to file Form 941 instead) if they estimated that their employment tax liability would exceed the $1,000 threshold or if they wanted to e-file Forms 941 quarterly instead.
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MFT 14 was established for this form. Payments can be processed using all methods now available to pay Form 941 taxes. An electronic filing option is available. See IRM 3.42.4, IRS e-file for Business Tax Returns. The tax class for Form 944 is "1" as it is for Form 941. The first Forms 944 were filed January 31, 2007.
Note:
MFT 14 is also the MFT for Non-Master File (NMF) Form 8613, Return of Excise Tax on Undistributed Income of Regulated Investment Companies. Form 944 is on MF and Form 8613 is on NMF. When generating a "C" letter from a Form 944 account, make sure the letter contains the correct form number.
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All penalties and interest applicable to Form 941 also apply to Form 944. Therefore, if the TP does not make deposits and submits payment with the return, the FTD penalty will be assessed for any payment of $2,500 or more paid with the filing of the return. If the TP discovers during the year that their liability is going to exceed the $1,000 threshold, advise the TP of their deposit requirement (monthly/semiweekly). More information on penalties for Form 944 can be found in IRM 20.1, Penalty Handbook.
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For tax years 2006 - 2008, notification letters were issued yearly on or around February 1st to newly eligible taxpayers. Those taxpayers that were already notified they were Form 944 filers, did not receive another notification letter. The table below describes the different types of notification letters:
Description of notice Notice number (TY 2006-2008) Form 944 notification letter Notice 01345 Form 944PR notification letter Notice 01347 Form 944SS notification letter Notice 01348 -
Beginning with tax year 2009 and subsequent, the eligibility extract will no longer be run to identify eligible Form 944 taxpayers. Even though eligible Form 944 filers will not be systemically identified (mailed a notification letter), taxpayers may still inquire to "opt in" the 944 program.
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The notification letter instructs the taxpayer to call us with any questions, or if he wishes to "opt out" of the program. For tax years 2006 - 2009, the taxpayer could only "opt out" for the two allowable reasons:
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Taxpayer wishes to file Form 941 electronically, and/or
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Taxpayer will exceed $1,000 in total tax liability
Note:
Beginning with tax year 2010, Form 944 filers can "opt out" of the Form 944 program for any reason. See Rev. Proc. 2009-51 for more information.
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The taxpayer must contact us by April 1st of the year to change their filing requirement for the current year. If filing requirements are changed on request of the TP, a letter of acknowledgement must be issued.
Example:
TP states he will exceed the $1,000 threshold. Change filing requirements as indicated and either fax an acknowledgement indicating the filing requirements have been changed, or generate Letter 3007C and acknowledge the change in an open paragraph clearly stating their filing requirements have been changed.
Note:
If faxing an acknowledgement, refer to IRM 11.3.1.11 for proper faxing guidance.
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The chart below provides procedures for handling most of these inquiries (keeping in mind the April 1st deadline).
If And Then TP states they will exceed $4,000 in wages, and/or $1,000 in taxes ENMOD indicates TP filing requirement is Form 944 Change filing requirement from Form 944 to Form 941 and issue Letter 3007C to confirm filing requirement change. TP states they filed a Final Form 941 for the third or fourth quarter of previous year Return has or has not posted for the period specified, and ENMOD indicates open filing requirements for Form 944 Close Form 944 filing requirement. TP states he wishes to file Form 941 electronically, even though he will not exceed $1,000 in tax Research indicates TP is e-filing Form 941 or not (not required as TP may wish to e-file for the first time) Change filing requirement from Form 944 to Form 941 and issue Letter 3007C. TP states they are not liable for an employment tax return (no employees, etc.) An employment tax filing requirement is open Close the open employment tax filing requirement. Note:
You must verify the date the last wages were paid.
TP states they believe their liability will not exceed $1,000 for the year Account indicates liability is decreasing
Example: Third and/or fourth quarter Form 941 accounts indicate little or no liability, or amounts of deposits have decreased recently. Or, TP was a seasonal employer whose total tax liability for the periods July 1, 2009 through June 30, 2010, indicates a liability slightly over $1,000Change filing requirements to Form 944 and close filing requirement for Form 941 and issue Letter 3007C to the taxpayer. Note:
Use caution when considering this action. Remind the TP if their liability exceeds $1,000 for the year, they will not be eligible to file Form 944 the following year. Also advise the TP that they may be liable for FTD payments during the year if they owe $2,500 or more for the year. FTD penalties could possibly be assessed.
TP states they are a new employer and believe their liability will not exceed $1,000 for the year (anytime during the year) ENMOD shows no filing requirement prior to the current year Establish filing requirements for Form 944 and delete Form 941 filing requirements, if applicable and issue 3007C letter to taxpayer. TP states they are an existing employer with no prior employment tax filing history and believe their liability will not exceed $1,000 for the year (anytime during the year) ENMOD shows no filing requirement prior to the current year Establish filing requirements for Form 944 and delete Form 941 filing requirements, if applicable, and issue 3007C letter to taxpayer. TP is a new employer and received CP 575 stating that he has Form 944 filing requirements TP states he is expecting to exceed the $1,000 threshold Delete the Form 944 filing requirement and establish filing requirements for Form 941. This can be done throughout the year. Note:
Make sure the TP is, in fact, a new employer and has not filed any returns (941/944) for the year in question.
Caution:
Anytime the filing requirements are changed per the above instructions, it is necessary to consider all payments previously made for the current tax year. If payments have been applied to MFT 01 for tax that will be reported on MFT 14, or if payments have been applied to MFT 14 for tax that will be reported on MFT 01, transfer those payments to the appropriate tax account and tax period.
Reminder:
Taxpayers who currently file monthly Forms 941 (filing requirement codes 09 or 10) and/or any taxpayer who has an account (in the eligibility period) in TDI (Taxpayer Delinquency Investigation) status (MF status 02 or 03) are not eligible for the Form 944 program and should not be established as a Form 944 filer.
Note:
If TP will accept hand written faxed document, notate on approved IRS fax cover sheet and sign statement stating TP's request for filing requirement change has been made. Make sure the filing requirement change is made prior to closing the call.
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Several CP notices will be issued after Form 944 is filed and the TP's total tax exceeds $1,000, and is no longer eligible to remain in the program. See IRM 21.7.2.4.9.3, Form 944 CP Notices, for additional information.
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At this time, Chief Counsel has determined that Reporting Agents (RA) are not permitted to respond to "opt out" of the program on behalf of their clients. The RA's must have a valid Power of Attorney (POA) (either on file, or that can be faxed to us) to act on behalf of their clients. RA's most likely will wish to keep their clients filing quarterly Forms 941, but caution must be exercised when speaking with the RA's and filing requirements cannot be changed for their clients, unless the RA has a valid POA.
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If a taxpayer files a Form 941 in a calendar year in which they are designated as a Form 944 filer, the Form 941 unposts.
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If it is April 1st or prior, Entity Unpostables makes contact with the taxpayer to determine his intent and changes the filing requirement, as appropriate.
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If it is after April 1st, Entity Unpostables processes the return as a Reject and issues Letter 4148C to the taxpayer instructing him that he is a Form 944 filer and must file Form 944 annually.
Note:
Prior to 01-01-2007, Letter 4086C was issued instead of 4148C.
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If you receive an inquiry concerning Letter 4148C, follow the procedures below:
If And Then Taxpayer states that he opted out of the Form 944 program by the April 1st deadline Note:
Taxpayer must have submitted a written request and/or made contact via phone and the request was not processed. Accept the taxpayer's word.
The filing requirement was not changed to Form 941 and the 944 cache is set to the current year and request is received in the current year Example:
TP is mandated to file Form 944 in 2007 and the request is received in 2007.
Allow the taxpayer to continue to file Form 941. -
Request the originally filed return from Files using the DLN (Document Locator Number) of the unpostable/Rejected TC 150. If you are not able to secure the originally filed return, request a signed copy of the originally filed Form 941 from the taxpayer, via fax. (See NOTE below table.)
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Change the filing requirement to Form 941.
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Send Letter 3007C to confirm filing requirement change, even if resulting from a phone call.
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Transfer all applicable deposits to the Form 941 account.
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Send Form 941, secured from Files, for processing as the original. (If you are unable to secure the original return from Files and must use a faxed return, edit the received date on faxed forms to reflect a timely filed return. See Note below table.)
Exception:
If you are staffing the toll-free telephone lines at a remote call site, do not follow steps 1-5 above; instead complete Form 4442/e-4442 and route to the Campus AM account paper function within your Directorate or designated campus. Include the DLN of the unpostable/Rejected TC 150 on the Form 4442.
Taxpayer states he opted out of the 944 program by the April 1st deadline The filing requirement was not changed to Form 941 and the 944 cache is set to the current year and request is received in a subsequent year Example:
TP is mandated to file Form 944 in 2007 and a request is received in 2008.
DO NOT change the filing requirement. Explain to the taxpayer he is still liable for a Form 944 because we are unable to change the 944 filing requirement in a subsequent year. Taxpayer did not opt out of the 944 program by April 1st DO NOT change the taxpayer's filing requirement to Form 941. -
Instruct the taxpayer that he must file Form 944 and deposit accordingly.
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Input history items (via CC ACTON) to document that the taxpayer did not opt out and must file Form 944.
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Ensure all applicable deposits are applied to the 944 account.
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Advise taxpayer that if he files a timely Form 944 and exceeds the $1,000 annual threshold, he will be returned to a Form 941 filer next year.
Taxpayer states any other extenuating circumstances Refer to your manager/lead for approval. Note:
If the unpostable/Rejected DLN is not available on IDRS, the Letter 4148C contains the DLN of the unprocessed return and can be used to request the return from Files. If you secure the originally filed return from Files and are forwarding to be processed as the original, cross out the DLN and make sure the received date is on the return.
Reminder:
Only the taxpayer or their authorized representatives may "opt out" of the Form 944 program. Chief Counsel has determined that Reporting Agents are not permitted to "opt out" of the program on behalf of their clients. The RA must have a valid POA (either on file or that can be faxed) to act on behalf of their clients. Third Party PIN designees are also not authorized to "opt out" of the Form 944 program for the taxpayer.
Reminder:
If the taxpayer's filing requirement is changed based on a 4148C reply, be sure to secure any missing returns (not already filed) that need to be filed. If the taxpayer has missing Forms 941, secure the returns, preferably by fax. Once returns are received, forward for processing with the actual received date.
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There are three new CP notices that may be issued to Form 944 filers.
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CP 250A
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CP 250B
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CP 250C
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CP 250A is issued to taxpayers who file Form 944 and have a total tax liability on line 7 of Form 944 of more than $1,000.
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CP 250A notices are only issued for returns that have met the PCD (Program Completion Date), posting in or before cycle 09 of each year (on or around February 22nd).
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This notice instructs the taxpayer that he is no longer eligible to file Form 944 and he must file quarterly using Form 941 for the current year.
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Follow the chart below for inquiries from taxpayers that received CP 250A.
If And Then TP files Form 944 for 2010 and exceeds the $1,000 threshold TP states he wants to remain in the Form 944 program and will not exceed the $1,000 threshold in 2011 Note:
Verify with the taxpayer that he will, in fact, have a total tax liability of $1,000 or less for 2011. If doubt exists, do not allow the taxpayer to file Form 944.
Allow the TP to remain in the Form 944 program. -
Change the filing requirement to Form 944.
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Issue Letter 3007C to the taxpayer for verification of filing requirement change.
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Instruct the taxpayer of his deposit requirements.
Note:
Taxpayer may have exceeded the $1,000 threshold for many reasons. (For example, taxpayer corrected an administrative error from a prior year or a unique situation they had in 2010 that they don't expect to have in 2011.)
TP files Form 944 for 2010 and exceeds the $1,000 threshold TP states he wants to remain in the Form 944 program, even though he will exceed the threshold Instruct the TP that he must file Form 941 and that he is not eligible for the Form 944 program. -
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CP 250B is issued to taxpayers who file Form 944 and have a total tax liability on line 7 of Form 944 of more than $1,000, but the return did not meet the PCD of cycle 09. This notice is for the returns processed between cycles 10 - 49.
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This notice instructs the taxpayer they will remain a Form 944 filer for the current year and to make the appropriate FTD's as required by the lookback analysis. These taxpayers will be allowed to remain Form 944 filers for the year because there is not a sufficient amount of time to notify them to file quarterly.
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Taxpayers that receive CP 250B will also receive CP 250C later in the year informing them that they will be changed to a Form 941 filer beginning January the subsequent year.
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Follow the chart below for inquiries from taxpayers that received CP 250B.
If Then TP states he wishes to file Form 941 for 2011 and it is April 1 or prior Allow the taxpayer to file Form 941 for 2011. -
Change the filing requirement to Form 941.
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Issue Letter 3007C to the TP for verification of filing requirement change.
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Inform TP of his deposit requirements and Form 941 due dates.
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Verify that all applicable deposits are transferred to the Form 941 account.
TP states he wishes to file Form 941 for 2011 and it is after April 1 Instruct the TP he must file Form 944 for 2011 and for 2012 he will be switched back to a Form 941 filer. Inform TP of his deposit requirements. Note:
If you receive an inquiry from a taxpayer stating he has filed his Form 944 and it exceeds the $1,000 threshold and the return has not posted, do not change the filing requirement. Allow the Form 944 to post and the taxpayer will either receive a CP 250A or CP 250B, depending on when the 944 posts. Instruct the taxpayer to respond to the notice at that time.
Note:
Utilize CC BMFOLE to verify the 944 cache to determine when the taxpayer was mandated to file Form 944 and when their final Form 944 will be filed. If Form 941 filing requirements appear on CC ENMOD, verify CC BMFOLE for the correct filing requirements. See Exhibit 2.3.59-13, Command Code BMFOL Entity Display - Address Information, for more information on the applicable values for the Form 944 cache.
Example:
If TP's F944 CACHE YR 2007 = 1 and F944 CACHE YR 2008 = 1, then TP would be required to file Form 944 for 2007 and 2008 and Form 941's for 2009, if applicable.
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The valid characters for the 944 cache on CC BMFOLE are "blank" , "1" or "2" . The value of "2" is set in the 944 cache year when the taxpayer is going to be reverted from a 944 filer to a 941 filer the following year based on the filing of a Form 944 which exceeded the $1000 threshold. This code allows MF to correctly identify the CP 250C recipients at the end of the year.
Example:
TP files Form 944 for 200912 which posted after cycle 09 (in 2010) and exceeded $1,000 (CP 250B recipient). Form 944 cache for TY 2010 is set to "2" when the return posts and will remain until the end of the year when MF generates the CP 250C. At that time, the "2" will revert to a "1" and the TP's FR will be switched to Form 941 for TY 2011.
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CP 250C is issued to Form 944 filers who:
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Received CP 250B earlier in the year, or
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File Form 944 after cycle 49 of the current calendar year. These taxpayers will not receive CP 250B, only CP 250C.
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This notice informs the taxpayer that because they exceeded the $1,000 threshold for the Form 944 participation, they must file Form 941 for the upcoming year.
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This notice is generated in cycle 52.
Example:
Taxpayer files Form 944 after the PCD and the total employment tax liability was more than $1,000 for tax year 2009. Taxpayer is allowed to remain in the 944 program and file Form 944 for 2010, but beginning in 2011, he must file Form 941.
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Form 944-X (Form 944-X (PR)) is filed to correct income tax withholding and/or FICA tax information previously reported on Form 944, Form 944-SS, Form 944(SP), or Form 944-PR. Taxpayers can choose to either file:
-
An adjusted employment tax return, or
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A claim
Note:
If the taxpayer does not check a box in Part 1 (or checks both boxes) and the Form 944-X reflects a tax decrease, make two attempts to contact the taxpayer by phone (if a telephone number is available) to determine whether they intended to follow the adjustment process or the claim process. If unable to contact the taxpayer by phone, verify which set of certification box(es) were checked. If the taxpayer checked the adjustment certification(s) or checked both the adjustment certification(s) and the claim certification(s), process as an adjusted employment tax return. If the taxpayer checked only the claim certification(s), process as a claim for refund.
Reminder:
When contacting the taxpayer or authorized representative, follow taxpayer authentication guidelines in IRM 21.1.3 .
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Taxpayers are required to certify on Form 944-X that they have filed or will file Forms W-2, or Forms W-2c, as required. They must also complete the applicable certification box based on their selection in Part 1 of Form 944-X.
Example:
If TP checks box 1 in Part 1, then they must check the applicable certification box(es) in line 4. If TP checks box 2 in Part 1, then they must check the applicable certification box(es) in line 5.
Note:
If the TP checks an incorrect certification box based on the information in Part 1, continue processing the claim based on the information provided in Part 1.
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Refer to the table below for valid item reference numbers for Form 944-X.
Item Reference Number Explanation 111 Income tax withheld from wages, tips, and other compensation (line 7 of Form 944-X - column 4). 004 Taxable social security wages (line 8 of Form 944-X - column 3). 005 Taxable social security tips (line 9 of Form 944-X - column 3). 073 Taxable Medicare wages and tips (line 10 of Form 944-X - column 3). 112 Total social security and Medicare tax (total of lines 8, 9, & 10 of Form 944-X - column 4). 115 Exempt wages/tips paid to qualified employees after March 31 (line 11b of Form 944-X - column 3). For MFT 14, only valid for tax period 14/201012. 116 Taxes on exempt wages/tips paid to qualified employees after March 31 (line 11b of Form 944-X - column 4). For MFT 14, only valid for tax period 01/201012. 106 Tax adjustments (line 12 of Form 944-X - column 4). 104 Income tax withheld figured at IRC Section 3509 tax rate on Special addition to wages for federal income tax (line 13 of Form 944-X - column 4). 105 Social security and Medicare taxes figured at IRC Section 3509 tax rates on Special addition to wages for social security taxes and Special addition to wages for Medicare taxes (lines 14 and 15 of Form 944-X - column 4). 113 Total adjustments (total of lines 11, 12, 13, and 14 of Form 944-X - column 4). Reminder:
IRN 113 must be used when adjusting IRNs 104 through 106.
117 Exempt wages/tips paid to qualified employees March 19 - 31 (line 18d of Form 941-X - column 3). Note:
For MFT 14, this credit can only be claimed on tax period 01/201012.
Credit Reference Numbers (CRN) 766/767 Advance Earned Income Tax Credit (AEITC) (line 16 of Form 944-X - column 4). Note:
AEITC has been legislatively eliminated for tax periods after 201012.
299 COBRA premium assistance payments (line 17a of Form 944-X - column 4). 296 Refundable tax credit on exempt wages/tips paid to qualified employees March 19 - 31 (line 18d of Form 944-X - column 4). Note:
For MFT 14, this credit can only be claimed on tax period 14/201012.
Note:
See IRM 21.7.2.4.1 for additional requirements with specific item reference numbers.
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These tax decreases involve income tax withholding and/or FICA.
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Verify all required items on Form 944-X are complete, such as:
-
Name, address, and EIN
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Type of return being corrected
-
Calendar year being corrected
-
Part 1 Box 1 is checked
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Applicable certification is checked on line 4a, 4b or 4c
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Detailed explanation
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Signature
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If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.
Caution:
The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.
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If a taxpayer files an adjusted employment tax return within 90 days of the expiration of the Period of Limitations, the adjustment must be converted to a claim for refund and the taxpayer must be notified.
-
To convert an adjustment to a claim, notate the following remarks on the Form 944-X:
"90 day - Claim." -
Generate Letter 4384C to the TP explaining the adjustment has been converted to a claim.
Note:
See IRM 21.7.2.4.9.4.2 to process claim as a refund and refer to IRM 21.7.2.4.6.5 for additional information on 90 day - Claims.
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A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A), for additional information.
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Math verify adjustments to income tax, social security tax, and Medicare tax.
-
Do the following:
-
Input TC 291, HC 1, BS 20 and the appropriate IRN's for the amount of decrease.
Note:
Overpayments arising from adjustments made under these procedures are subject to offset. Omit Hold Code 1 with the adjustment and allow the computer to systemically offset the credit if it will be fully absorbed by an outstanding balance due. Otherwise, if conditions prevent the computer from completing the offset, or if only part of the credit needs to be offset, manual offsets using TC 820/TC 700 transactions will be required.
Caution:
For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5.
-
Transfer the applicable overpayment using TC 830/710 to the period in which the Form 944-X was filed.
Caution:
To prevent interest from generating, use the later of the return due date of the tax period being adjusted or the availability date of the overpayment as the transaction date of the TC 830 and use the due date of the return the credit is being applied to as the transaction date of the TC 710. See IRM 21.5.8.4.3(3), Determining Correct Credit Transfer Format, for more information.
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If the entire credit is not available to be transferred, generate Letter 4384C to the taxpayer. Explain why the entire amount was not available for example, there was a balance due on the tax period being adjusted or the credit is being offset to a balance due on another tax period).
-
-
If the taxpayer's filing requirement has changed from Form 944 to Form 941 or vice versa, the credit will be transferred to the filing requirement that was active for the period in which the adjusted return was filed. In the majority of these cases, this will be the taxpayer's current open filing requirements, but not always.
Example:
Taxpayer filed Form 941-X in September 2009 for adjustment to a Form 941 in 2007. Taxpayer's filing requirement for 200912 is Form 944; however, current open filing requirement is Form 941 since taxpayer opted out of Form 944 for TY 2010. The credit will be applied to 200912 MFT 14 module, since that is the tax period in which adjustment was filed.
-
These tax decreases involve income tax withholding, FICA tax, and/or AEITC.
Note:
AEITC has been legislatively eliminated for tax periods after 201012.
-
Verify all required items on Form 944-X are complete, such as:
-
Name, address, and EIN
-
Type of return being corrected
-
Calendar year being corrected
-
Part 1 Box 2 is checked
-
Applicable certification is checked on line 5a, 5b, 5c or 5d
-
Detailed explanation
-
Signature
-
-
If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.
Caution:
The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.
Exception:
Claims filed without consent. If taxpayer has not checked a box on line 5 and states (in the explanation or in response to our contact) they are not required to obtain the consents prior to filing the claim and the claim is ≡ ≡ ≡ ≡ ≡ ≡ ≡ , send claim CAT-A. Exam will correspond with the taxpayer to secure applicable certifications. In certain situations, taxpayers may not have repaid or reimbursed their employees or obtained their consents prior to filing a claim (Form 944-X). However, they must certify they have repaid or reimbursed their employees or obtained consents before the Service can accept the claim. See Instructions for Form 944-X for more information.
-
A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A) — General, for additional information.
-
Math verify adjustments to income tax, social security tax, and Medicare tax.
-
Input TC 291, BS 20 and the appropriate IRN's for the amount of the decrease.
Caution:
For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5.
-
If the entire credit is not available to be refunded to the taxpayer, generate Letter 4384C to the taxpayer explaining the discrepancy.
-
These tax increases involve income tax withholding and/or FICA tax.
-
Verify all required items on Form 944-X are complete.
-
Check for the date the taxpayer discovered the error. If not entered on page 1, review the explanation.
Note:
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , if the ascertained date is not provided and a telephone number is available, make two attempts to contact the taxpayer by phone to obtain the information. If the ascertained date cannot be obtained by phone, input the adjustment as a TC 290.
Exception:
If you receive a Form 944-X for the immediately preceding tax year prior to the due date for the current tax year (for example, a Form 944-X reporting a tax increase for tax year 2009 received on or before January 31, 2011), it is not necessary to contact the taxpayer for an ascertained date. In that situation, input a TC 298 with the applicable interest computation date. See IRM 21.7.2.4.6.2, Interest Free Adjustments (Employment Tax Returns), for more information.
-
Math verify adjustments to income tax withholding, social security tax, and Medicare tax.
-
Use the table below to make your adjustment(s).
If Then Return is filed by the due date of the return for the period in which the taxpayer discovered the reporting error Input TC 298, BS 20 and the correct interest computation date (INTCMP-DT). See IRM 21.7.2.4.6.2 and example below for additional information. Return is not filed by the due date of the return for the return period in which the error was ascertained or "date you discovered errors" was blank or the date error was discovered was not furnished in Part 4 Input TC 290 with BS 20. Example:
An employer discovers an error on February 1, 2011 and files a Form 944-X which is received by the IRS on March 1, 2011 for the 14/200912 tax period. The interest computation date would be March 1, 2011.
-
Adjust the FTD penalty when using either a TC 290 (see IRM 20.1.4.21.3) or a TC 298 (see IRM 20.1.4.21.5).
Note:
See IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X), when using a TC 298 or TC 291 and an amended ROFT was provided with the adjusted return.
-
Be sure any payments are credited to period(s) where the tax is being assessed.
-
All non-payroll items (pensions, annuities, IRA's, military retirement, gambling winnings, BUWH, Indian Gaming Profits) are reported on Form 945. As a general rule, all income tax and BUWH (Backup Withholding) reported on Forms 1099 or W-2G must be reported on Form 945. The threshold for making deposits is $2,500.
-
Form 945 is an annual return due January 31 following the close of the calendar year. A taxpayer is required to file Form 945 only for a calendar year in which the taxpayer is required to withhold tax required to be reported on Form 945.
Note:
The return due date for Form 945 is extended 10 days if timely deposits are made which full pay the amount of tax reported.
-
Form 945 tax deposit requirements are separate from Form 941. They cannot be combined. Taxpayers follow either semi-weekly or monthly deposit schedules determined by the Form 945 lookback period. See IRM 20.1.4, Failure to Deposit Penalty.
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IRN's 003, 008, and 184 (periods 199512 through 200812 for IRN 184) are valid for Form 945. The MFT is 16, tax class is 1.
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Form 945-X is filed to correct income tax withholding and/or BUWH information previously reported on Form 945. Taxpayers can choose to either file:
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An adjusted return of withheld federal income tax, or
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A claim
Note:
If the taxpayer does not check a box in Part 1 (or checks both boxes) and the Form 945-X reflects a tax decrease, make two attempts to contact the taxpayer by phone (if a telephone number is available) to determine whether the they intended to follow the adjustment process or the claim process. If unable to contact the taxpayer by phone, process as an adjusted employment tax return.
Reminder:
When contacting the taxpayer or authorized representative, follow taxpayer authentication guidelines in IRM 21.1.3.
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-
Adjustments on Form 945-X can only be made if they are the result of an administrative error.
-
See IRM 21.7.2.4.6.3.1 for more information on administrative errors.
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Even if income tax or BUWH was erroneously withheld, it cannot be corrected in a subsequent year. This includes erroneous withholding on IRA's.
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The amount withheld must be reported on Form 945-X under the same EIN as was actually used to do the withholding. Withholding amounts cannot be transferred or delegated to different EIN's, unless such action involves a successor employer.
Example:
The mutual fund industry has an "industry practice" involving transfer agents where one agent has control of an account and withholds taxes for part of the year. Another agent may take control of the account and withhold taxes for the remainder of the year. The industry practice is for the agent in control of the account at the end of the year to report all taxes withheld. This CANNOT be done. Each agent must report and deposit the amount of tax withheld under its own EIN and issue a Form 1099. Any requests for adjustments involving this practice must be denied. Input TC 290 .00 in block 98 (without return) or 99 (with return) and issue Letter 105C or 106C as appropriate.
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-
Item reference numbers valid for Form 945-X are 003 and/or 008.
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These tax decreases involve income tax withholding and/or BUWH.
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Verify all required items on Form 945-X are complete, such as:
-
Name, address, and EIN
-
Calendar year being corrected
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Part 1 Box 1 is checked
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Detailed explanation
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Signature
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If a taxpayer files an adjusted employment tax return within 90 days of the expiration of the Period of Limitations, the adjustment must be converted to a claim for refund and the taxpayer must be notified.
-
To convert an adjustment to a claim, notate the following remarks on the Form 945-X:
"90 day - Claim." -
Generate Letter 4384C to the TP explaining the adjustment has been converted to a claim.
Note:
See IRM 21.7.2.4.10.1.2 to process a claim and refer to IRM 21.7.2.4.6.5 for additional information on 90 day - Claims.
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-
A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A) — General, for additional information.
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Math verify adjustments to income tax and/or BUWH.
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Do the following:
-
Input TC 291, HC 1, BS 20 and the appropriate IRN's for the amount of decrease.
Note:
Overpayments arising from adjustments made under these procedures are subject to offset. Omit Hold Code 1 with the adjustment and allow the computer to systemically offset the credit if it will be fully absorbed by an outstanding balance due. Otherwise, if conditions prevent the computer from completing the offset, or if only part of the credit needs to be offset, manual offsets using TC 820/TC 700 transactions will be required.
Caution:
For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5.
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Transfer the applicable overpayment using TC 830/710 to the period in which the Form 945-X was filed.
Caution:
To prevent interest from generating, use the later of the return due date of the tax period being adjusted or the availability date of the overpayment as the transaction date of the TC 830 and use the due date of the return the credit is being applied to as the transaction date of the TC 710. See IRM 21.5.8.4.3(3), Determining Correct Credit Transfer Format, for more information.
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If the entire credit is not available to be transferred, generate Letter 4384C to the taxpayer. Explain why the entire amount was not available (for example, there was a balance due on the tax period being adjusted or the credit is being offset to a balance due on another tax period).
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-
These tax decreases involve income tax withholding and/or BUWH.
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Verify all required items on Form 945-X are complete, such as:
-
Name, address, and EIN
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Calendar year being corrected
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Part 1 Box 2 is checked
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Detailed explanation
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Signature
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A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A) — General, for additional information.
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Math verify adjustments to income tax and/or BUWH.
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Input TC 291, BS 20 and the appropriate IRN's for the amount of the decrease.
Caution:
For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5.
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If the entire credit is not available to be refunded to the taxpayer, generate Letter 4384C to the taxpayer explaining the discrepancy.
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These tax increases involve income tax withholding and/or BUWH.
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Verify all required items on Form 945-X are complete.
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Check for the date the taxpayer discovered the error. If not entered on page 1, review the explanation.
Note:
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , if the ascertained date is not provided and a telephone number is available, make two attempts to contact the taxpayer by phone to obtain the information. If the ascertained date cannot be obtained by phone, input the adjustment as a TC 290.
Exception:
If you receive a Form 945-X for the immediately preceding tax year prior to the due date for the current tax year (for example, a Form 945-X reporting a tax increase for tax year 2010 received on or before January 31, 2012), it is not necessary to contact the taxpayer for an ascertained date. In that situation, input a TC 298 with the applicable interest computation date. See IRM 21.7.2.4.6.2, Interest Free Adjustments (Employment Tax Returns), for more information.
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Math verify adjustments to income tax and/or BUWH.
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Use the table below to make your adjustment(s).
If Then Return is filed by the due date of the return for the period in which the taxpayer discovered the reporting error Input TC 298, BS 20 and the correct interest computation date (INTCMP-DT). See IRM 21.7.2.4.6.2 and example below for additional information. Return is not filed by the due date of the return for the return period in which the error was ascertained or "date you discovered errors" was blank or the date error was discovered was not furnished in Part 4 Input TC 290 with BS 20. Example:
An employer discovers an error on February 1, 2011 and files a Form 945-X which is received by the IRS on March 1, 2011 for the 16/200912 tax period. The interest computation date would be March 1, 2011.
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Adjust the FTD penalty when using either a TC 290 (see IRM 20.1.4.21.3) or a TC 298 (see IRM 20.1.4.21.5).
Note:
See IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X), when using a TC 298 or TC 291 and an amended ROFT was provided with the adjusted return.
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Be sure any payments are credited to period(s) where the tax is being assessed.
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The following subsections provide procedures to be followed when a taxpayer reports non-payroll income tax withholding or backup withholding (BUWH) on an incorrect employment tax return.
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Upon receipt of a Form 941 with BUWH, the procedures described below are implemented.
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Pipeline processing:
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Deletes BUWH from Form 941
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Enters SIC (Schedule Indicator Code) 3
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Inputs CCC "X" if a refund is due to taxpayer (generates a '-R' freeze)
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Issues a notice to taxpayer informing him/her of Form 945 filing requirements and the amount of BUWH deleted from Form 941 (They also inform taxpayer further information will be received in the near future.)
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Photocopies the return and uses Form 3465 to send a copy to Accounts Management on an expedited basis (Form 3465 indicates "Form 941/945 BUWH" .)
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-
Upon receipt of Form 3465, on an expedited basis, in Accounts Management:
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Transfer the proper deposits to Form 945 if it is evident which deposit(s) is intended for BUWH and inform taxpayer of the action taken.
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If you cannot definitely ascertain which deposits are intended for BUWH, contact taxpayer to determine the amounts and dates of the deposits to be moved to the Form 945 account. Phone contact is preferred.
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If unable to contact by phone, initiate correspondence and suspend the case for 40 days.
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When the proper credits have been transferred, call or send taxpayer a letter advising of the payments transferred to Form 945.
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If there appears to be any additional deposits credited to taxpayer’s account, or any deposits missing from taxpayer’s account (based on the deposits claimed on the copy of the Form 941), attempt to resolve while in contact with the taxpayer.
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If, after credit transfers have been completed, there is a credit balance on the account, take action to resolve the '-R' freeze. See IRM 21.5.6, Freeze Codes.
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When preparing Form 945, some taxpayers realize they have reported non-payroll withholding on Form 941 for the first three quarters of the year which should have been reported on Form 945.
-
To resolve these cases:
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Code & Edit forwards the information to Accounts Management on Form 3465 noted "Non-payroll on Form 941" .
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When received in Accounts Management, if there is no breakdown by quarters and it cannot be determined by information on IDRS, contact taxpayer for the necessary information.
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These cases must be worked within 10 working days of receipt in Accounts Management if taxpayer provides the necessary information, including a breakdown.
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If no breakdown is provided, resolve the case as soon as possible.
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-
To adjust tax and make the necessary credit transfers on these cases:
-
Input TC 291 with HC 1 (do not use another HC – we want taxpayer to receive a notice) to reduce each quarter’s tax on Forms 941 as indicated from the information provided.
-
Use IRN 003 or 111 depending on the tax year.
-
Do not adjust any FTD penalty assessed on the Form 941 module(s) on which you input TC 291, unless the decrease brings the liability for the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Follow procedures outlined in IRM 20.1.4.21.3, Amended or Supplemental Return (Tax Decrease or Non-Interest Free Tax Increase), whenever adjusting the tax.
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Use TC 820/700 with the correct availability date to transfer the credit to MFT 16. If unable to apply the entire amount of the TC 291, write or phone taxpayer and inform him/her of the amount applied and the reason the entire amount could not be applied (e.g., taxpayer had a balance due on the period(s) which the decrease(s) was made).
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Input credit transfers for deposits made on fourth quarter Forms 941 which must be transferred to Form 945. (Taxpayer should provide a breakdown if only a portion of a deposit should be moved.) Use corresponding TC's for each payment (e.g., TC 652/650, TC 672/670).
-
Perfect the filing requirements, if needed.
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A taxpayer may realize during the year that non-payroll withholding was incorrectly reported on Form 941 which should be reported on Form 945.
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See IRM 21.7.2.4.10.2.2, Taxpayer Files Form 945, Reported Nonpayroll Withholding on Form 941 Previously, to make the necessary corrections when Form 945 is filed. (See procedures below and it will not be necessary for taxpayer to file amended Form 941-X for the quarters for which he has already filed.)
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For a quarter in which taxpayer has made deposits for his Form 941 account, but has not yet filed a return, ask taxpayer to provide the date of the deposits and the portion of each deposit which should be credited to his non-payroll withholding on Form 945. Make the necessary credit transfer(s). Instruct taxpayer not to include the amount of non-payroll withholding in his tax computation when he files Form 941 for that quarter.
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For quarters in which taxpayer has previously filed Form 941 erroneously reporting non-payroll withholding, instruct taxpayer, when he files Form 945, to attach a letter explaining the situation. It must include a list of dates and amounts for each deposit, or portion of each deposit, which was intended for non-payroll withholding on Form 945 and a breakdown by quarters, of the amount of non-payroll withholding erroneously reported on Form 941. Instruct the taxpayer to include the entire amount of non-payroll withholding for the year on Form 945, including the amount previously erroneously reported on Form 941.
Caution:
Do not make tax adjustments to Form 941 for the amount erroneously reported. Do not refund the money to taxpayer. It is needed on the Form 945 account when taxpayer files his Form 945. Adjustments will be made at that time.
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-
A taxpayer may file a Form 941 reporting non-payroll items. C&E (Code & Edit) will identify these returns and correspond with the taxpayer to determine their intent.
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If the taxpayer's reply indicates they should have filed Form 945, C&E will forward a request to Accounts Management.
-
To resolve these cases:
-
C&E will forward the Form 941 to Accounts Management on Form 3465 indicating "Non-payroll on Form 941" .
-
Delete the filing requirements for Form 941 and establish Form 945 filing requirements, if applicable.
-
Return the Form 941 to the taxpayer using the appropriate "C" letter and inform the taxpayer of his correct filing requirements.
-
Input the appropriate credit transfers to move the applicable credits from Form 941 to Form 945.
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For payments made from 1993 through August 6, 2001, BUWH was imposed at the rate of 31% on reportable payments of interest, dividends, patronage dividends, etc. See below for changes in rates.
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30.5% for payments in 2002 that began August 7, 2001
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30% for tax years 2002
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28% for tax years 2003 through 2012
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Some payors withhold the tax from exempt recipients who are not otherwise required to file an income tax return, and advise them to secure refunds from IRS. Basically, a payor is not required to withhold on a payment made to a payee described in IRC Section 3406(g)(1), Backup Withholding.
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The following are exempt from withholding:
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An organization exempt from taxation under IRC 501(a) or an individual retirement plan
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The United States, its wholly owned agency or instrumentality
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A state, the District of Columbia, a possession of the United States, or any political subdivision
-
A foreign government or political subdivision of a foreign government
-
An international organization (e.g., the United Nations and the Organization of American States)
-
-
If an organization is exempt under IRC 501(a) or an individual retirement plan, and has been erroneously subjected to BUWH, it must file Form 990-T, Exempt Organization Business Income Tax Return, to claim a refund of such withholding.
Exception:
A Private Foundation can claim erroneous BUWH on Form 990-PF, Return of Private Foundation, instead of Form 990-T.
Note:
See IRM 5.19.3, Backup Withholding Program and IRM 21.7.7.4.3.5, Backup Withholding, for additional information on BUWH.
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The procedures listed below on issuing a refund from the employer’s Form 945 account apply only to the exempt entities listed in IRM 21.7.2.4.10.3 (3) b-d above.
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If payor withholds on an exempt recipient, payor may treat the amount as erroneously withheld and refund it to the payee as long as the refund is made prior to the end of calendar year, and prior to the time the appropriate Form 1099, Statement for Recipient, is furnished.
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If payor makes a refund after having made last deposit for tax year, but before the Form 945 is filed, then only the correct amount of BUWH should be reported but nevertheless includes the BUWH amount of the Form 945 and the overpayment automatically refunded to taxpayer (payor).
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If payor makes a refund during the calendar year but after last deposit has been made for tax year, then a Form 843 claim must be filed to obtain a refund.
-
-
If recipient is exempt from filing an income tax return, use the following procedure:
-
The exempt recipient must file Form 843 or similar statement.
-
Attach a statement to Form 843 from each payor who erroneously withheld tax, setting forth the amount of tax withheld, the date withheld, and a statement to the effect the payor did not repay or reimburse the recipient and will not claim an adjustment for the amount on Form 945.
-
The statement must be signed by the person authorized to sign the payor’s Form 945, and list the TIN (Taxpayer Identification Number) of the account the BUWH was paid under. See the table below for processing instructions.
If Then Payee files a Form 843 for tax withheld before the end of the tax year Advise payee to seek reimbursement from the payor. Tax year has ended and the required statement is attached Follow normal procedures to issue a manual refund to the exempt recipient from the payor’s Form 945. Include manual interest and verify posting of the manual refund. The tax year has ended and the required statement is not attached Advise the payee to obtain the required statement from the payor. -
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All other taxpayers must claim BUWH on a related income tax return. See IRM 21.7.4.4.10, Backup Withholding (BUWH) on Income Tax Returns, for more information.
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If a Form 94XX or Form 843 claim is filed for BUWH on any employment tax account, including Form 945, reject the claim and explain to taxpayer an income tax return must be filed to claim the credit.
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TEFRA requires pension trusts to report and pay withholding on pension income. This is reported and paid on Form 945. (Prior to 1994, Form 941, or 941E was used.)
-
Taxpayers can request a separate EIN for the pension trust, however, it is not a requirement. Separate branches within a company may want a different EIN for internal purposes only.
-
If multiple returns on pension trusts are filed, and taxpayer’s intent cannot be determined:
-
Correspond to inform taxpayer to combine all the withholding from pension incomes on one Form 945, or to request separate EIN's for each pension trust.
-
Inform taxpayer, if separate EIN's are assigned, they are responsible for all filing requirements and penalty assessments.
If Then No reply, or taxpayer states they do not want separate EIN's Input TC 290 to assess any additional tax. Taxpayer requests separate EIN's Photocopy the case file and forward to Entity for assignment of EIN's. When EIN's are assigned, re-input the returns and transfer any credits to the new EIN's. Refunds were issued prior to the posting of the second return Contact taxpayer as stated in (3) above. -
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The Social Security and Domestic Employment Reform Act of 1994 (SSDERA) added IRC Section 3510 which provides that the collection of domestic service employment taxes performed after December 31, 1994 be coordinated with the collection of income taxes.
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Domestic service in the private home of the employer is also referred to as household employment. Domestic employees are also referred to as household employees. The FICA taxes, federal income tax withholding (if any), and FUTA taxes incurred by employers of household employees are referred to as household employment taxes.
-
Although collected with income tax, household employment taxes are employment taxes.
-
See IRM 21.7.2.4.11.1, Forms Used in Reporting Employment Taxes for Household Employees, for information on the proper form to be filed for reporting household employment taxes.
-
For additional guidance on household employment taxes, see:
-
Pub 926, Household Employer's Tax Guide
-
Notice 95-18 (1995-1 C.B. 300) which clarifies issues related to SSDERA.
-
-
Schedule H (Form 1040) is used to report FICA tax, any federal income tax withheld, and FUTA tax for household employees as follows:
-
Individuals file Schedule H (Form 1040) with their Form 1040 series income tax return. These are processed on MFT 30. See IRM 21.6.4.4.8, Schedule H, Household Employment Taxes, for more information.
-
Trusts (and certain groups not required to file income tax returns) file Schedule H (Form 1040) with Form 1041. These are processed on MFT 05. See IRM 21.7.4.4.1.11, Social Security Domestic Employment Reform Act (SSDERA) for 1994 and BMF Schedules H, for more information.
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-
Taxpayers who are sole proprietors, or whose home is on a farm operated for profit, may include FICA tax and income tax withholding for domestic employees on their employment tax returns (Forms 941, 943, or 944 as appropriate) along with the employment taxes for their other business or farm employees. If the employer chooses to report household employment taxes in this manner, FUTA taxes for the household employees must be reported on Form 940.
-
Partnerships cannot be domestic employers.
-
Corporations cannot be domestic employers.
-
See IRM 21.7.2.4.11.3, Household Employment Taxes and Section 3504 Fiscal/Employer Agents, for filing and payment requirements when an employer has designated an agent (including state and local governments or their subagents) to withhold, report, and make payment of household employment taxes.
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The table below provides guidance for handling common household employment tax inquiries received in Accounts Management.
If And Then A general inquiry is received regarding household employment taxes. Example:
Questions regarding wage thresholds, tax rates, forms to be filed, etc.
Research Pub 926, Household Employer's Tax Guide, forms, and form instructions as appropriate to provide the taxpayer with the guidance needed. An inquiry is received about a Schedule H (Form 1040) which was or will be filed with Form 1041. See IRM 21.7.4.4.1.11, Social Security Domestic Employment Reform Act (SSDERA) for 1994 and BMF Schedules H, for more information. An inquiry is received about a Schedule H (Form 1040) which was or will be filed with Form 1040. See IRM 21.6.4.4.8, Schedule H, Household Employment Taxes for more information. An inquiry is received about a Form 941, Form 943, Form 944 filed to report household employment taxes (FICA and/or federal income tax withheld). The household employment taxes (FICA and/or federal income tax withheld) should have instead been reported on Schedule H (Form 1040) with a Form 1040 See IRM 21.6.4.4.8.12, BMF Form 941 Filed Instead of IMF Schedule H, for more information. An inquiry is received about a Form 941, Form 943, Form 944 filed to report household employment taxes (FICA and/or federal income tax withheld). The household employment taxes (FICA and/or federal income tax withheld) should have instead been reported on Schedule H (Form 1040) with a Form 1041 See paragraph (5) of IRM 21.7.4.4.1.11.3, Adjustments (Amended Returns, TRNS 193s, etc.) Involving Forms 1041 With Schedule H, for more information. An inquiry is received regarding a Form 940 filed to report FUTA taxes for household employees. The FUTA tax should have instead been reported on Schedule H (Form 1040) with either a Form 1040 or Form 1041 See IRM 21.7.3.4.16, Schedule H FUTA Erroneously Reported. An inquiry is received from an entity claiming to be a partnership The entity has reported household employment taxes Advise the taxpayer that a partnership cannot be a domestic employer. Instruct the taxpayer that they must follow one of the following options for reporting household employment wages and tax: -
One member of the unit can report all taxes and wages on Schedule H filed with his/her Form 1040, or;
-
Each member can report his/her portion on Schedule H filed with his/her Form 1040.
An inquiry is received from a state or local government acting as an IRC 3504 agent on behalf of Home Care Service Recipients Note:
These entities may be identified by the presence of Employment Code "A" , the literal"HHCSR" in the name line, or use of the following terms: "Household Employer Agency" , "Fiscal Agent" , or "Choreworker" .
An FTD penalty has been charged (on any tax module) Abate any FTD penalties identified on these accounts even if taxpayer is not requesting abatement. Taxes can be paid with the return. No deposits are necessary. See IRM 20.1.4.5, State and Local Health Welfare, for more information. An inquiry is received from a party who is operating as an IRC 3504 agent for one or more household employers but is not a state or local government. An FTD penalty has been charged Do not adjust the penalty unless other abatement criteria applies. These agents are responsible for making timely federal tax deposits as any other employer or Section 3504 agent. -
-
An employer may designate an agent under IRC Section 3504 to withhold, report and pay Federal employment taxes. To request approval to act as a Section 3504 agent for an employer, the agent files Form 2678, Employer/Payer Appointment of Agent, with the IRS.
Note:
Form 2678 processing information may be found in IRM 3.13.2.16, Form 2678, Employer/Payer Appointment of Agent.
-
Specific rules apply when the employer is a Home Care Service Recipient (HCSR).
-
A Home Care Service Recipient (HCSR) is an individual who receives home care services while enrolled in a program administered by a Federal, state, or local government agency that provides funding for the home care services.
-
"Home care services" are personal and attendant care services rendered in the Home Care Service Recipient's home or local community.
-
Generally, the Home Care Service Recipient (HCSR) is the employer if they have the right to direct and control the provision of services by the home care services provider. The provision of services to the HCSR also generally constitutes household employment.
-
The Home Care Service Recipient (HCSR) may designate, and the IRS may approve, a Section 3504 agent to act on behalf of the HCSR to withhold, report and pay the Federal employment taxes for the workers they hire to provide home care services.
-
-
There are two types of Section 3504 agents that act on behalf of Home Care Service Recipients (HCSRs):
-
Federal, state or local government agency operating in accordance with Rev. Proc. 70-6 as modified by Rev. Proc. 80-4 and Notice 2003-70. See IRM 21.7.2.4.11.3.1, State or Local Government Agency Acting as IRC 3504 Agent, and IRM 21.7.2.4.11.3.2, Subagent that Contracts with a Federal, State or Local Government Agency to be a Section 3504 Agent for Home Care Service Recipients, for special procedures that apply to these agents and their subagents.
-
Any other non-governmental entity engaged by the Federal, state or local government agency to participate in various aspects of a home care services program. These entities may choose to act as the Section 3504 agent for the HCSRs in accordance with Rev. Proc. 70-6 by filing a Form 2678 for each HCSR.
Note:
Both types of agents may elect to perform the employment tax obligations themselves or to further contract with a reporting agent or subagent.
-
-
A state or local government agency may be approved to act as a Section 3504 agent on behalf of Home Care Service Recipients (HCSRs) who hire home care service providers.
-
These entities may be identified by one or more of the following characteristics:
-
The presence of Employment Code "A" .
-
The literal "HHCSR" in the name line of the entity.
-
Returns or correspondence referencing the terms "Household Employer Agency" , "Fiscal Agent" , or "Choreworker" .
-
-
Notice 2003-70 (2003-2 C.B. 916) provides a proposed revenue procedure giving updated guidance to state and local government health and welfare agencies acting on behalf of HCSRs. Also see Rev. Proc. 80-4.
-
If the government agency operates according to Rev. Proc. 80-4 and Notice 2003-70, then several special procedures apply:
-
Government agencies acting on behalf of HCSRs enrolled in a program they administer do not need to file a Form 2678, Employer/Payer Appointment of Agent, for each HCSR. For more information on Form 2678, see IRM 21.7.2.3.7, Fiscal/Employer Agents Operating in Accordance with IRC Section 3504, and IRM 3.13.2.16, Form 2678, Employer/Payer Appointment of Agent.
-
The government agency may obtain a special EIN that is used for the sole purpose of acting as a Section 3504 agent for HCSRs. See Notice 2003-70, Q&A 11.
-
The government agency may file aggregate Form 941 and Form 940 tax returns using the government agency’s special EIN to report all wages paid on behalf of HCSRs.
Note:
Beginning in 2010, Section 3504 agents are required to attach additional documentation when filing aggregate employment tax returns. See IRM 21.7.2.4.7.7, Schedule R (Form 941): Allocation Schedule for Aggregate Form 941 Filers, and IRM 21.7.3.4.7, Schedule R (Form 940): Allocation Schedule for Aggregate Form 940 Filers, for more information.
-
The government agency may remit all taxes related to HCSRs with a timely filed Form 941 or Form 940. Government agencies acting as Section 3504 agents for HCSRs are not required to make Federal Tax Deposits (FTDs) or follow the deposit schedules applicable to employers and other Section 3504 agents. If the government agency hires a reporting agent to perform employment tax obligations, the reporting agent may perform those obligations as if it were the government agency. However, if the government agency uses Form 2678 to appoint a Section 3504 agent (called a "subagent" ) to perform the employment tax obligations of the HCSRs, the subagent must follow some procedures applicable to other types of Section 3504 agents, such as making deposits as described in paragraph (7) of IRM 21.7.2.4.11.3.2, Subagent that Contracts with a Federal, State or Local Government Agency to be a Section 3504 Agent for Home Care Service Recipients.
Note:
FTD penalties are systemically waived for accounts bearing Employment Code "A" . However, incorrect penalties may be charged on accounts which have not been correctly coded. See the table in IRM 21.7.2.4.11.2, Procedures for Household Employment Tax Inquiries, for instructions on addressing FTD penalties charged on accounts of state or local government agencies acting as Section 3504 agents for HCSRs.
-
-
A Federal, state or local government agency may engage one or more other entities (called "subagents" in Notice 2003-70) to act as the Section 3504 agent directly on behalf of Home Care Service Recipients (HCSRs) who hire home care service providers as part of a program administered by the government agency.
-
Subagents may be for-profit or non-profit entities. Industry terms for these types of agents include:
-
Fiscal/Employer Agents
-
Vendor Fiscal/Employer Agents
-
Agent for Home Health Care Service Recipients
-
-
In order to operate as a subagent under Notice 2003-70 provisions, subagents must receive authorization to act as the Section 3504 agent by filing a complete Form 2678, Employer/Payer Appointment of Agent, executed by the government agency.
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The government agency may contract with the entity to provide other services to the HCSRs outside of withholding, reporting, and paying Federal employment taxes. The government agency may also engage multiple entities for various aspects of the home care services program. However, only the entity appointed by the government agency using Form 2678, can be a subagent permitted to operate under Notice 2003-70. All other non-governmental entities engaged by the Federal, State, or local government agency to provide home care services must follow the procedures under Rev. Proc. 70-6 and obtain a separate Form 2678 for each individual HCSR.
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Subagents should use the government agency's special EIN obtained solely for purposes of acting on behalf of HCSRs. For more information on assignment of EINs for these government agencies, subagents, and other non-governmental entities acting as Section 3504 agents for HCSRs, see IRM 21.7.13.5.14, Household Employer (Fiscal) Agents and Home Health Care Service Recipients (Internal Revenue Code (IRC) Section 3504).
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The subagent may file an aggregate Form 941 reporting any withheld income tax and FICA taxes for its own employees as well as for HCSRs. In addition, although Section 3504 agents may generally not file aggregate Form 940 tax returns, the IRS will currently accept an aggregate Form 940 filed by a Section 3504 agent (whether they are a government agency, subagent, or other entity) if the return shows that it was filed only on behalf of clients who are HCSRs. See Proposed Treasury Regulations Section 31.3504-1, REG-137036-08, 2010-6 I.R.B. 398; and IRM 21.7.3.4.6, Limited Exception for Aggregate Returns.
Note:
Beginning in 2010, Section 3504 agents are required to attach additional documentation when filing aggregate employment tax returns. See IRM 21.7.2.4.7.7, Schedule R (Form 941): Allocation Schedule for Aggregate Form 941 Filers, and IRM 21.7.3.4.7, Schedule R (Form 940): Allocation Schedule for Aggregate Form 940 Filers, for more information.
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Subagents are generally required to pay employment taxes by means of timely Federal Tax Deposits in accordance with regular deposit schedules applicable to all employers. Subagents are generally not permitted to pay employment taxes directly to the IRS when they file Forms 941 or Form 940.
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This section includes information and procedures for specific claims and other issues associated with employment taxes.
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Claims citing IRC Section 861 are frivolous claims and must be sent to the Ogden Compliance Campus Frivolous Return Program as outlined in IRM 21.5.3.4.16.7, Identifying Frivolous Returns/Correspondence and Responding to Frivolous Arguments . Do not, under any circumstances, adjust the account prior to sending to Ogden.
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Some claims may be received that don't indicate this section. However, they may also be considered frivolous. See (3) for examples.
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There may be a Form 941c, or Form 941 annotated across the top "Amended or Corrected" , or Form 941-X filed to reduce all the payroll taxes to ≡ ≡ ≡ for all open payroll tax quarters. Most of these returns have been prepared by hand.
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The explanation generally states "see attached..." which is generally a cover letter. The letters do not state a specific reason for filing the amended return, or they provide a general explanation such as "I have enclosed a corrected Form 941c as required by law when the filer discovers any error made on such return." Often the cover letter contains a cc: to a congressperson.
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The TP only cites "Administrative Error" and does not indicate further why they are reducing the tax to zero.
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If doubt exists as to whether the claim is frivolous, do not send the claim to Ogden. Reject the claim back to the TP following "No Consideration" procedures outlined in IRM 21.5.3.4.6 , No Consideration and Disallowance of Claims and Amended Returns. Inform the taxpayer sufficient information was not received to consider the claim at this time and that a detailed explanation is necessary. If the claim received is a numbered return, or statute is imminent, contact the TP for a complete explanation before adjusting the account.
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An individual taxpayer may erroneously list personal withdrawals as being wages and pay FICA tax on Form 941, Form 943, or Form 944. When filing Form 1040, a credit was claimed for the FICA tax paid. Taxpayer was contacted and a Form 941-X was returned to IRS for processing.
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Action required:
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Review Form 941-X to ensure all required items are complete.
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Input TC 291 with IRN's 004 and 073 for wages and 112 for tax to each period involved. Use appropriate HC.
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If manual penalties (such as TC's 160, 180, or 270) are assessed for any periods being adjusted, re-compute penalties based on the portion of tax being decreased. Adjust any TC 186 as instructed in IRM 20.1.4.21.3, Amended or Supplemental Return (Tax Decrease or Non-Interest Free Tax Increase).
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Input credit transfers to move credit from Form 941, 943 or 944 to taxpayer’s Form 1040.
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Attach a copy of Form 941-X to each adjustment document.
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A worker, whose firm failed to withhold taxes and reported earnings on a Form 1099-MISC, can request IRS to determine whether or not they are an employee. ("Firm" is used instead of "employer" since the issuer of the Form 1099-MISC has not been determined to be an employer at this stage.) A Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, must be filed by the worker or the firm in order for the IRS to make the determination. The form can also be filed by workers treated as employees if they want to determine their proper classification.
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In order to file Form SS-8:
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The worker must have filed a tax return(s) for the period(s) in question. (See (6) or (7) below, depending on tax year, for procedures when the taxpayer has not yet filed a return for the period(s) in question.)
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The statute of limitations must be open for that period(s).
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The worker must have no objection to disclosing their name to the firm.
Note:
If the taxpayer initially objects to disclosing their name to the firm, encourage them to do so. If Form SS-8 is not filed, the matter becomes an issue which the worker must resolve. Usually this involves contact with the firm. That process is time consuming and frustrating for both the worker and the firm. If worker still objects, see (5) below.
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If the worker meets the criteria in (2) above, follow the steps below.
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Send Form SS-8 to the worker.
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Instruct the worker to complete Form SS-8 and mail it to the appropriate address. (The appropriate address is based on the firm's legal residence, principal place of business, office, or agency and can be located in the "Where to File" section of the Instructions for Form SS-8.)
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Alert the taxpayer that the determination can take up to 180 days after the Form SS-8 is received.
Note:
If the statute of limitations for the period in question may expire before the determination is made, inform the worker that a letter will be sent when the Form SS-8 is received advising of procedures for filing a protective claim for that period.
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The SS-8 group contacts the firm and asks them to complete Form SS-8 from their perspective of the work relationship. The SS-8 group compares the two Forms SS-8. The SS-8 group makes a determination, and:
If And Then Worker is determined to be an employee Worker originally filed Schedule SE and paid self-employment tax Worker should file Form 1040X and Form 4137 or Form 8919, depending on the tax year, to report only the employee share of social security and Medicare tax and file an amended Schedule SE to correct the self-employment tax previously reported. Worker is determined to be an employee Worker originally reported only the employee share of social security and Medicare tax Note:
Currently the use of Form 8919, Uncollected Social Security and Medicare Tax on Wages, requires the filing of a Form SS-8 except in limited cases indicated on the form.
Worker does not need to file Form 1040X, but simply keeps a copy of the determination letter for his/her records. Worker is determined to be an employee Firm is protected by one of the Safe Havens of Section 530 of the Revenue Act of 1978 The firm is not required to treat worker as an employee for employment tax purposes. The worker is liable for only the employee share of social security and Medicare taxes. IRM 21.6.4.4.15, Employees Filing Under the Revenue Act of 1978, Section 530, contains additional information. Worker is determined to be an independent contractor The SS-8 group sends the worker a letter advising of the necessary actions including self-employment tax liability. -
If the worker objects to disclosing their name to the firm, the worker must determine to the best of their knowledge whether they are an employee. (See Note in (2) above.) (Note that Forms SS-8 will not be processed if the worker does not agree to disclose their name to the firm.) Since the worker received a Form 1099-MISC (unless the worker can convince the employer he or she is, in fact, an employee and have Form W-2 issued instead of Form 1099-MISC), it would appear he or she is not an employee.
Note:
Always encourage the workers to participate in the Form SS-8 process. Only inform the workers of the options below if they refuse to participate. Inform them if they do report the income as if they were an employee, it is possible they could be classified as self-employed at a later date and owe additional taxes.
If Then The worker believes he should be classified as an employee and determination has not been made Report the income on the "wages" line on Form 1040 and attach Form 1099-MISC. (The taxpayer will not be assessed self-employment tax on original processing. However, Examination may look at the return to determine if the taxpayer is liable for self-employment tax.) The worker believes he should be classified as self-employed 1. Report income on Schedule C.
2. Compute self-employment tax on Schedule SE.
3. Attach Forms 1099-MISC, Schedule C, and Schedule SE to Form 1040. -
If the taxpayer has not yet filed a return for the tax period involved (2006 or prior), instruct him/her to:
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File Form 1040.
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Report the amount on Form 1099-MISC on the "wages" line. (The taxpayer may also want to indicate "Form SS-8 filed" on the dotted line to the left of the "wages" if he/she has filed, or will file, Form SS-8.)
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Complete Form 4137 and attach it to Form 1040.
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Cross out the word "TIP(S)" and insert the word "WAGE(S)" on Form 4137.
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Follow the instructions on Form 4137 for computing the social security and Medicare tax, and enter the amount on Form 1040, page 2 as instructed on Form 4137.
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File Form SS-8. Do not include it with Form 1040. Mail it based on the "firm's" address as provided on the Form SS-8 instructions.
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If the taxpayer has not yet filed a return for the tax period involved (2007 or subsequent), instruct him/her to:
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File Form 1040.
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Report the amount on Form 1099-MISC on the "wages" line. (The taxpayer may also want to indicate "Form SS-8 filed" on the dotted line to the left of the "wages" if he/she has filed, or will file, Form SS-8.)
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Complete Form 8919 and attach it to Form 1040.
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Follow the instructions on Form 8919 for computing the social security and Medicare tax, and enter the amount on Form 1040, page 2 as instructed on Form 8919.
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File Form SS-8. Do not include it with Form 1040. Mail it based on the "firm's" address as provided on the Form SS-8 Instructions.
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If taxpayer inquiry is received during current year and wants a determination prior to the end of the year, instruct TP to complete the SS-8 and mail accordingly. The TP does not have to wait until the year is over before asking for a determination.
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In certain circumstances, IRC 3509 provides for reduced employer liability for employment taxes when a worker is reclassified from being treated as an independent contractor to being treated as an employee. If IRC 3509 tax rates apply, the amount of employment taxes owed by the employer will depend on whether information returns (e.g. Form 1099–MISC) were filed as required for treatment of the individuals as independent contractors. The employer pays their share of FICA tax and either 20% or 40% of the employee's share. The employer also pays income tax withholding figured at either 1.5% or 3% of the wages.
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IRC 3509 assessments are often made by the Service and can be identified by the use of IRN 079. However, the employer may self-assess under IRC 3509 provisions if they determine the worker was misclassified and all requirements are satisfied. See Pub 4341, Information Guide for Employers Filing Form 941 or Form 944, Frequently Asked Questions about the Reclassification of Workers as Employees.
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The following procedures address employer self-assessments of employment taxes for misclassified employees where IRC 3509 special tax rates apply.
Note:
The following paragraphs reference the line numbers for Form 941 and Form 941-X. If the employer is filing another adjusted employment tax return, use the applicable line and column numbers.
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For misclassified workers discovered on or after January 1, 2009, employers must file Form 941-X (or other applicable "X" form) for each tax period involved to report employment taxes owed under the special IRC 3509 tax rates. The Form 941-X must be prepared as follows:
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The wage amounts must be entered in column 1 on lines 14, 15, and 16.
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Zeroes should be entered in column 2 of lines 14, 15, and 16.
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Columns 3 and 4 must be completed as per the Part 3 instructions.
Note:
See archived IRM 21.7.2 if info is needed on IRC 3509 handling prior to January 1, 2009.
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If an original tax return was not filed for each tax period involved, the employer must also file the delinquent tax return(s) as follows:
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An original tax return must be prepared for each tax period with "Misclassified Employees" written in dark, bold letters across the top margin of page 1.
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A zero must be entered on line 10 ("Total taxes after adjustment for advance EIC" ).
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Part 5 ("Sign here" ) must be completed.
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The completed Form 941-X (or other applicable "X" form) must be attached to the original return being filed.
Note:
These filing instructions are an exception to normal filing and processing. Submission Processing has instructions to forward Forms 941-X filed under these special procedures to Accounts Management for adjustment action and will code the original return to freeze any credit on the tax module. See IRM 3.11.13.10.3, Non-Taxable Returns With No Line Entries.
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Adjust the tax account per the Form 941-X (or other applicable "X" form) as follows:
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Input an increase to IRN 004 to match the figure in column 3 of line 15.
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Input an increase to IRN 073 to match the figure in column 3 of line 16.
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Input an increase to IRN 104 to match the figure in column 4 of line 14.
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Input an increase to IRN 105 for the combined figures found in column 4 for lines 15 and 16.
Note:
≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
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Input an increase to IRN 113 for the combined IRN 104 and IRN 105 figures as determined above.
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Input a TC 290 or TC 298 increase as per IRM 21.7.2.4.6.2, Interest Free Adjustments (Employment Tax Returns), procedures to match the IRN 113 figure as determined above.
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Ensure payment(s) are appropriately applied to the applicable tax period(s).
Note:
Employers who discover they have misclassified employees but who do not qualify for the special IRC 3509 tax rates are also required to file Form 941-X (or other applicable "X" form) to report the employment taxes owed and may qualify for interest free tax adjustments. In cases where the employer did not file an original return for the tax period involved, the employer is instructed to file an original tax return with "Misclassified Employees" written across the top margin of page 1 in dark, bold letters and to attach a completed Form 941-X (or other applicable "X" form). Accounts Management may receive documents filed under those procedures for misclassified employees. Normal tax rates and adjustment procedures are to be applied when the special IRC 3509 rates do not apply.
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If a Form 941-X mentions RRB determinations or transferring overpaid FICA taxes to Form CT-1, see IRM 21.7.2.6.5.8.
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A religious order whose members are required to take a vow of poverty (or any autonomous subdivision of such an order) may elect to have FICA extended to services performed by its members in the exercise of duties required by such order. They are excluded from "employment" for FICA purposes, except when an election of coverage is in effect. See IRC 3121(b)(8)(A) and § 31.3121(b)(8)-1; IRC 3121(r) and § 31.3121(r)-1.
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A religious order making an election of coverage must file Form SS-16, Certificate of Election of Coverage Under the Federal Insurance Contributions Act. See IRM 3.13.2.15, for additional information.
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On Form SS-16, the religious order must designate one of the following dates as the effective date for the election:
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The first day of the calendar quarter in which the Form SS-16 was filed, or
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The first day of the calendar quarter immediately after the calendar quarter in which Form SS-16 is filed, or
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The first day of any one of the 20 quarters before the quarter in which the Form SS-16 was filed.
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The following table illustrates the last day the Form SS-16 can be filed to elect retroactive coverage for 20 quarters:
If the religious order wants coverage retroactive to: Then Form SS-16 is due: January 1, 2006 (1st quarter 2006) March 31, 2011 April 1, 2006 (2nd quarter 2006) June 30, 2011 July 1, 2006 (3rd quarter 2006) September 30, 2011 October 1, 2006 (4th quarter 2006) December 31, 2011 January 1, 2007 (1st quarter 2007) March 31, 2012 April 1, 2007 (2nd quarter 2007) June 30, 2012 July 1, 2007 (3rd quarter 2007) September 30, 2012 October 1, 2007 (4th quarter 2007) December 31, 2012 If Then Form SS-16 is made effective the first day of the calendar quarter in which the SS-16 is filed The return is due the normal due date for Form 941 for the current quarter. Form SS-16 is made effective the first day of the calendar quarter immediately after the calendar quarter in which the SS-16 is filed The return is due the normal due date for Form 941. -
Under IRC 3121(r), the due date of the returns for all retroactive quarters is determined by the date the Form SS-16 is "filed " . The due date for filing the returns and paying the tax, for calendar quarters prior to the quarter in which the SS-16 is filed, is the last day of the calendar month following the calendar quarters in which the Form SS-16 is filed.
If the Form SS-16 is filed any day during the Then all the returns for the retroactive quarters must be filed and tax paid by 1st quarter 2011 April 30, 2011 2nd quarter 2011 July 31, 2011 3rd quarter 2011 October 31, 2011 4th quarter 2011 January 31, 2012 1st quarter 2012 April 30, 2012 2nd quarter 2012 July 31, 2012 3rd quarter 2012 October 31, 2012 4th quarter 2012 January 31, 2013 Note:
Generally, the received date is the date Form SS-16 is "filed" for purposes of determining when returns are due. If the religious order or subdivision selects an effective date that is the first day of the 20th calendar quarter preceding the quarter in which Form SS-16 is postmarked, but the Form SS-16 is received in a later quarter, the IRS will use the postmark date to determine the date filed to ensure the intended 20th quarter can be included.
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A religious order will not be subject to a failure to pay penalty or interest, if it files the returns for the retroactive quarters and pays the total tax liability by the due date. IRC 3121(r) provides that the period of limitations for assessment for retroactive quarters will not expire before the expiration of 3 years from such due date.
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A religious order must report its tax liability for each quarter it is electing coverage. The form that must be filed for each of the retroactive quarters depends on whether an original Form 941, Employer's QUARTERLY Federal Tax Return, was filed for the specific retroactive period. Refer to table below:
If Then Form 941 was never filed for one or more quarters for which the election is effective The religious order must file Forms 941 for those retroactive quarters. Original Forms 941 were filed for any of the retroactive quarters for which the election is effective The religious order must file Form 941-X, Employer's QUARTERLY Federal Tax Return or Claim for Refund, for those retroactive quarters.
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Certain government agencies are empowered to collect wages from employers that were erroneously not paid to current or former employees. After withholding income taxes and the employee’s share of FICA taxes, these federal agencies disburse the remaining wage amounts to the employees concerned. Agencies allowed to take this action and the provisions which allow such action are:
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Department of Labor (DOL) – Fair Labor Standards Act
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Government Accountability Office (GAO) – Davis-Bacon Act
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Housing and Urban Development (HUD) – Davis-Bacon Act
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National Labor Relations Board (NLRB) – Labor Management Relations Act
Note:
Extensive investigations are performed by the federal agencies to determine if claims for back wages or unfair labor practices are valid. Therefore, a relatively long period of time may elapse between the time employees become entitled to the wages and the time they actually receive payment from the agency involved.
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It was recently discovered the Department of Labor installed a new system which generates Forms 941-X (941c) to the Service. This system has generated erroneous Forms 941-X (941c) which require no action from the Service. If one of these erroneous forms are received, treat as classified waste. The following are a few examples (not all inclusive):
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Negative wages and negative tax.
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Negative wages and no tax.
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Zero wages and zero tax
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Positive wages and no tax.
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Federal agencies making wage determinations withhold income taxes and the employee's share of FICA taxes from payments made to employees. The federal agency then reports and pays the withheld income taxes and the employee share of FICA with an employment tax return filed with the IRS under a separate EIN assigned to the federal agency.
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Employment tax returns filed by the federal agencies are processed at the campus of receipt.
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Wages are reported on lines 2, 5a, and 5c of Form 941 and the full amount of tax is computed. The employer share of FICA is then deducted on line 9 of Form 941 as a negative adjustment.
Note:
Wages may also be reported on Form 943 or Form 944.
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An aggregate Form 941-X should be attached to the federal agency's Form 941.
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The aggregate Form 941-X will reflect the total wages and tax withheld for all employees for which wage determinations were made by the federal agency for that tax period.
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In the explanation area, the agency indicates the name of the agency and the Act which authorizes them to collect and pay back wages.
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The Form 941-X is stamped "Do Not Transmit to SSA" .
Note:
The federal agency also prepares two copies of Form 941-X for each employer showing the wage determinations for their employees and the FICA taxes owed by the employer. The federal agency sends one copy to the employer to inform them of their tax liability. The federal agency files the other copy with the IRS for assessment of the employer's share of FICA on the employer's EIN. See IRM 21.7.2.5.7.2, Processing of Forms 941-X Filed by Federal Agencies to Report Employer Share of FICA Taxes (Wage Payments Made by Federal Agencies), for instructions on processing those Forms 941-X.
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Federal agencies collecting wages from employers on behalf of employees withhold income taxes and the employee's share of FICA taxes from the payments made to the employees. However, the employer remains liable for the employer's share of FICA taxes.
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The federal agency prepares two copies of Form 941-X for the employer showing the wage determinations for their employees and the FICA taxes owed by the employer. One copy is sent to the employer to inform them of their tax liability. The other copy is filed by the federal agency with the IRS for assessment of the employer's share of FICA on the employer's EIN.
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The Form 941-X used by federal agencies for this purpose is generally not filed on the official Form 941-X version and does not include line numbers. However, it will be accepted so long as all information needed to compute the employer's share of the FICA tax liability and to process the adjustment is provided.
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If a return for the employer is posted:
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Input an adjustment using IRN 004 to show the amount of taxable social security wages.
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Input IRN 073 to show the amount of taxable Medicare wages.
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Input IRN 112 for the total FICA tax adjustment (employee and employer shares).
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Input IRN 110 and 113 to reflect the amount of FICA tax already collected from the employee's wages by the federal agency.
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Initiate Letter 134C to the employer advising a bill for employer’s portion of FICA will be issued in the near future and include a copy of Form 941-X from the government agency.
Note:
Do not include FITW (Federal Income Tax Withheld) (IRN 003/111) in the adjustment.
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If a return for the employer has posted, but the account is in TDA Status, see IRM 21.3.3.4.10.2.1, Amended Returns/Claims - Compliance Criteria, for additional guidance. State the nature and facts of the case if routing per that guidance.
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If no return for the employer has posted and there are no filing requirements for the current quarter, prepare the applicable employment tax return (usually Form 941) for the amount of the assessment and input as a "Final" return.
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Enter total taxable wages on lines 2, 5a, and 5c.
Note:
Do not include FITW, line 3.
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Compute total social security and Medicare taxes and enter the appropriate figures on lines 5a, 5c, 5d and 6e.
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Compute employee social security and Medicare taxes at the appropriate rates. Enter the total of the employee social security and Medicare taxes as a negative adjustment on line 9 (this represents the employee share which has already been collected and paid by the federal agency). Include valid entries on lines 10, 11 and 14 of Form 941.
Reminder:
The employee Medicare tax rate is 1.45% (.0145). For 2011, the employee social security tax rate is 4.2% (.042). For years other than 2011, the employee social security tax rate is 6.2% (.062).
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Indicate along the bottom portion of the return the governing agency that filed the Form 941-X for the employer. See IRM 21.7.2.5.7 for a listing of the applicable agencies.
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Initiate Letter 134C to the employer advising a bill for the employer’s portion of FICA will be issued in the near future and include a copy of the Form 941-X received from the federal agency.
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If no return for the employer has posted and a delinquency notice has been issued:
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Route to your Campus Collection Function.
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State facts in case and amount due.
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Attach continuation page(s) of Form 941-X to the memo.
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