When it comes to doing right by the Internal Revenue Service (IRS), employers and small businesses have quite a few responsibilities. From paying quarterly estimated taxes to filling out seemingly endless tax forms, there’s a lot to learn when you hire your first employee.
One thing we’ve learned working with small businesses over the years is that there are surprisingly few genuinely helpful resources out there to help new employers get a handle on all those responsibilities. If you’ve turned to the IRS website for help recently, you get what we mean.
That’s why we put together this guide, and others, to help simplify the world of payroll and taxes for new employers and small businesses.
In this guide, we’re talking about IRS Form 944, the Employer’s Annual Federal Tax Return, including:
- What Form 944 is
- Why the IRS requires employers to file it
- How to figure out if you need to file Form 944
- When and how to fill out and file Form 944
What is Form 944?
If you’re in a rush, here’s the gist:
- What’s reported on Form 944: Income and FICA tax withholding, plus the employer’s share
- When it’s filed: Annually
- Who needs to file: Small U.S. employers only
Simply put, Form 944 is a document the IRS requires some employers to file annually. The form helps both the employer and the IRS keep track of how much income tax and Federal Insurance Contribution Act (or FICA) tax that employer owes to the federal government, on an annual basis.
Since FICA taxes (which include Social Security and Medicare) are split 50/50 between the employer and employee, businesses report the income, Social Security, and Medicare taxes they withheld from employee paychecks—along with their own share of those taxes—on Form 944.
How is Form 944 different from Form 940?
With so many IRS forms to keep track of, it’s easy to get confused. Forms 940 and 944 are similar in that they’re filed once per year and report on payroll taxes owed to the federal government.
However, Form 940 reports an employer’s Federal Unemployment (FUTA) tax liability (an employer-only tax)—whereas Form 944 deals with income withholding and FICA taxes (which are shared by the employer and the employee).
How is Form 944 different from Form 941?
Form 941 is even more similar to Form 944, and easier to confuse. Both of these forms are used to report FICA and income tax withholding to the IRS. The primary difference comes down to the total income and FICA tax your small business owes for the year.
While the majority of U.S. employers report these taxes quarterly, using Form 941, small businesses whose annual tax liability falls below $1,000 can file Form 944 instead. The only real difference between the two is that Form 944 is filled annually.
Why the IRS requires employers to file Form 944
For the most part, Form 944 deals with taxes that many of us in the U.S. are already familiar with. As an employee or employer alike, you’ve probably seen income and FICA tax withholding on a paycheck.
Income taxes are paid by the employee, of course, but the employer is responsible for withholding them and depositing the withholding with the proper tax authority (in this case, the federal government). In addition, employers must also withhold 50% of the FICA tax owed from employee checks, and pay the remaining 50% themselves.
Throughout the year, tracking that withholding and your total tax liability can get messy. To ensure businesses pay the appropriate amount of income and FICA taxes each year, the IRS requires employers to file Form 944. Designed for those employers who owe a modest amount in these taxes (less than $1,000 for the year), Form 944 is an annual filing.
Wait—what are withholding and FICA taxes anyway?
Let’s jump back for a minute here. While you’ve probably heard of income tax withholding and FICA, you may not have a great grip on what they really are or what they involve. When it comes to payroll and employment, there are three primary types of tax:
- Withholding taxes: These taxes are what your employee’s pay on their income—and they include the standard income tax plus the employee’s portion of FICA taxes. You’re responsible for withholding these taxes from employee paychecks and depositing them to the federal government. These are part of what’s reported on Form 944.
- Employer taxes: As the name implies, you, the employer, are responsible for paying the full tax liability here. Federal Unemployment (FUTA) tax is an example.
- Shared taxes: These taxes are split between you and your employees and include Social Security and Medicare taxes (or FICA). It’s your responsibility to withhold the employee’s portion of these taxes and deposit the full amount (your portion and theirs) to the appropriate tax authority. These are also reported on Form 944.
Each employee’s income tax rate varies based on their annual income, qualified dependents, personal preference, and other factors, so you’ll need to collect a W-4 form from each employee annually. This form tells you how much income tax to deduct from their paycheck.
FICA taxes, on the other hand, are based on a set percentage across the board. For 2019, they total 7.65% for each party, the employer and employee. Here’s what the breakdown looks like:
- 6.2% Social Security tax (sometimes called OASDI)
- 1.45% Medicare tax
It’s important to note that Social Security tax only applies to the first $132,900 an employee earns (for 2019). After that, no additional Social Security tax is incurred by you or the employee. On the flipside, employees who earn more than a set annual income incur an additional 0.9% Medicare tax on any earnings over a set amount ($200,000 for those filing as single or $250,000 for those filing jointly with a spouse). Don’t forget: The additional Medicare tax is paid only by the employee, not the employer.
Do I need to submit Form 944?
By now, you’re likely wondering whether you need to submit Form 944. Just about all employers in the U.S. are required to report their income tax withholding and FICA tax liability to the IRS in some way. However, only those whose total annual liability is less than $1,000 are asked to file Form 944.
That means, if you:
- Paid wages to a W-2 employee (not a contractor) AND
- Owe $1,000 or less in withholding and FICA taxes for the year (generally, this means you paid $4,000 or less in taxable wages)
Then you’ll file Form 944 (most often, instead of Form 941).
The limited exceptions to this filing requirement include businesses or people who hire farmworkers or household employees (maids, nannies, etc.) only.
It’s worth noting that no employer is truly required to file Form 944. You can always opt to file Form 941 each quarter—but if you’re eligible, it’s often easier to file Form 944 annually.
Another key point here: The IRS will let you know if they want you to file Form 944. They’ll take a look at your past tax liability and make a determination themselves—so if you haven’t been instructed to file Form 944, it’s best to plan on filing quarterly (with Form 941) instead.
If you’d prefer to file Form 941 each quarter, you can contact the IRS to request a change in your tax filing method. Similarly, if you expect your annual employment tax liability to fall below $1,000 and haven’t been told to file Form 944, you can contact the IRS to request a change.
How to fill out Form 944
Now that you know whether or not you need to file Form 944, let’s talk about how and when you’ll need to do it. When it’s time to file, here’s the information you’ll need to have at the ready:
- Current FICA tax rates: For 2019, the Social Security tax rate is 6.2% and the Medicare tax rate is 1.45%, making a combined FICA tax rate of 7.65% for the employee and 7.65% for the employer. The total Social Security tax, to put it another way, is 12.4% and the total Medicare tax is 2.9%.
- The number of employees you had during the year
- Total wages paid to those employees
- Total taxable Social Security and Medicare wages for the year
- The total amount withheld from employee pay
- Any tax deposits you made throughout the year
Calculating how much tax you owe
Form 944 is designed to calculate your tax liability for the year, so by following the step-by-step instructions for filling it out, you’ll arrive at what you owe for the year.
Form 944 calculates a few different taxes, so the overall formula is a little complex. For our purposes here, we’ve broken it down into 3 parts.
- To calculate your income tax withholding, the formula looks like this: [Employee’s tax rate] x [total wages paid for the year]. So, for example, if your employee files as single and earns $3,000 annually, they fall into the 10% tax bracket. The income tax you withheld and owe to the IRS is 10% x $3,000 = $300.
- Here’s the formula for Social Security tax: [12.4% total Social Security tax rate] x [# of employees] x [taxable wages paid]. Using the same example from above and assuming you only have one employee, your Social Security tax owed looks like this: 12.4% x 1 employee x $3,000 = $372.
- The formula for finding your Medicare tax liability is similar: [2.9% total Medicare tax rate] x [total taxable wages paid]. So according to our example, your Medicare taxes are 2.9% x $3,000 taxable wages paid = $87.
After all that math, here’s a piece of good news for you: Most payroll systems (including Wave) will do all of this calculating for you. That means you can quickly and easily pull up the numbers you need to fill out Form 944, including income tax withheld, taxable FICA wages, and more.
When to submit Form 944
IRS Form 944 is an annual filing. That means employers eligible to file Form 944 are only required to complete and submit it once per year. For the vast majority of these businesses, it’s due on January 31st.
How to submit Form 944 and make your FICA and income withholding tax payments
When the time comes to submit Form 944 and make corresponding tax payments, small businesses have a few options to choose from:
- E-file and pay online
- Mail in your form and payments
- Work with an account to file for you
- Any combination of the above
E-file and pay online
This is the method of filing and paying that the IRS prefers. According to them, it’s
- More accurate
- More secure
In order to file Form 944 (or another IRS form) online, you’ll need to either use tax software or work with a tax professional who’s an authorized e-file provider. The IRS put together lists of approved software and authorized e-file providers to help you choose.
To pay your annual Form 944 tax balance, or make tax deposits throughout the year, you’ll use the Electronic Federal Tax Payment System (or EFTPS).
When you work with a tax professional or software to file, the IRS recommends making your payments via the Electronic Funds Withdrawal (EFW) option, which allows you to both e-file and authorize payment with just one step.
Mail in your form and payment
Small businesses and employers also have the option to mail in Form 944 and the corresponding tax payment.
To do so, you’ll need to print both Form 944 and Form 944-V, the payment voucher. You’ll mail these, plus your payment, to the corresponding address for your state. You can find the correct mailing address on page 6 of the Instructions for Form 944.
Work with an accountant to file for you
Your last, and often best, option for filing and paying Form 944 taxes is to work with a tax professional or CPA. Tax professionals can both file the form and deposit your corresponding payment via the EFW system we referenced before.
We just covered a lot about IRS Form 944. To sum up, here are the main takeaways employers and small businesses should remember:
- Form 944 reports the amount of income tax withholding and FICA tax an employer is responsible for paying
- Only employers whose annual employment tax liability is less than $1,000 are eligible to file Form 944 (instead of Form 941)