How to File Your Employer’s Annual Federal Tax Return
Navigate the requirements for an employer's annual federal tax return. Our guide provides a clear path for reporting and depositing employment taxes accurately.
As an employer, you are responsible for reporting and remitting federal taxes related to your employees’ wages. These employment taxes include federal income tax withheld from paychecks based on Form W-4 elections, Social Security and Medicare taxes (FICA) paid by both you and the employee, and the Federal Unemployment Tax Act (FUTA) tax. The FUTA tax is paid only by the employer to help fund state unemployment programs.
Identifying the Correct Annual Tax Forms
For the smallest employers, the primary annual form is Form 944, Employer’s ANNUAL Federal Tax Return. This form is designed for businesses whose yearly liability for Social Security, Medicare, and withheld federal income taxes is $1,000 or less. Eligibility is not automatic, as the IRS must notify you in writing that you are to file Form 944 instead of quarterly returns. New businesses are informed of their filing requirement after receiving their Employer Identification Number (EIN).
Nearly all employers must also file Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return. This form is filed annually in addition to either Form 944 or quarterly returns. A business must file Form 940 if it paid at least $1,500 in wages during any calendar quarter or had at least one employee for some part of a day in 20 or more different weeks. The 20 weeks do not need to be consecutive.
Most employers are not eligible to file Form 944 and are instead required to report these taxes on Form 941, Employer’s QUARTERLY Federal Tax Return. If you have not been specifically instructed by the IRS to file Form 944, you must file quarterly. Incorrectly filing annually when you are required to file quarterly can lead to penalties.
Employers in the agricultural sector must file Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees. This form is used to report federal income tax withheld and both shares of Social Security and Medicare taxes for farmworkers. It is filed annually and is specific to agricultural labor.
Information and Calculations for Filing
To complete your tax forms, you must compile all relevant payroll data for the calendar year. This includes records of total gross wages, tips, and other compensation paid to all employees. You will also need the total amounts of federal income tax, Social Security, and Medicare taxes withheld.
The calculation of FICA taxes includes the employee’s share that you withheld and your matching employer share. For Social Security, you and your employee each pay a 6.2% tax on wages up to an annually adjusted wage base limit. The Medicare tax is 1.45% for both employer and employee and applies to all covered earnings with no wage limit. The sum of these amounts is your total FICA tax liability.
To calculate your FUTA tax liability, the standard tax rate is 6.0% on the first $7,000 of wages paid to each employee. Employers can take a credit of up to 5.4% for state unemployment taxes paid on time. This credit effectively reduces the FUTA tax rate to 0.6%.
If you operate in a state designated as a “credit reduction state,” your FUTA tax credit may be reduced. This occurs when a state has an outstanding loan from the federal unemployment account, which increases your overall FUTA tax liability. You must account for any applicable credit reduction when calculating your final FUTA tax due.
Completing Key Annual Forms
You can download the most current versions of Form 944 and Form 940 directly from the IRS website. Using the official, up-to-date forms ensures compliance with any changes in tax law for the year.
When filling out Form 944, you will report total wages, tips, and other compensation, along with the federal income tax withheld. The form guides you through calculating the Social Security and Medicare tax liabilities based on wage totals. It then reconciles your total tax liability with the total deposits you made for the year to determine if you have a balance due or an overpayment.
On Form 940, you will enter basic business information, report total payments to all employees, and subtract any payments exempt from FUTA tax. Exempt payments can include certain fringe benefits or retirement plan contributions. You must also document your state unemployment tax contributions to justify the credit you are claiming. If you are in a credit reduction state, you must complete and attach Schedule A (Form 940).
Filing and Depositing Procedures
The deadline to file both Form 944 and Form 940 is January 31 of the year following the tax year. If you have made all required tax deposits on time and in full, the filing deadline is extended to February 10.
You can submit your returns by e-filing or by mail. The preferred method is to e-file using IRS-approved software or through a tax professional, as it is faster and more secure. If filing a paper return, you must consult the form instructions for the correct mailing address, which depends on your location and whether a payment is included.
Filing your return is a separate action from depositing your taxes. All federal tax deposits must be made through the Electronic Federal Tax Payment System (EFTPS), and the frequency depends on your tax liability. Even though Form 944 is an annual return, you may be required to make monthly deposits. If your total tax liability on Form 944 is less than $2,500 for the year, you can pay the amount due with the return.
If you have a balance due when you file, the payment should be made through EFTPS. While payment by check or money order with a paper return is an option, the IRS encourages electronic payment.