Form 944 (Employee's Annual Federal Tax Return)

To reduce the tax filing burden, the IRS issued temporary regulations that require certain small employers to file the new Form 944 (Employer's Annual Federal Tax Return) annually instead of filing Form 941 quarterly. In addition, employers that qualify to file Form 944 will pay their employment taxes once a year instead of every quarter. Only employers whose estimated annual employment tax liability is $1,000 or less are eligible to file Form 944. Typically this includes very small employers that pay no more than $4,000 in annual wages that are subject to federal income tax withholding and FICA taxes. Employers that have been notified by the IRS must file Form 944.

If an eligible employer's employment tax liability exceeds $1,000, the employer would still file Form 944 for that tax year, but would start filing Form 941 at the beginning of the next tax year. The IRS will send the employer a notice advising them of the change to Form 941 quarterly filing requirements.

If an employer anticipates that its annual tax liability will exceed $1,000, or the employer prefers to electronically file Forms 941 quarterly instead of filing Form 944 annually, the employer may continue to file 941 only if written permission is obtained from the IRS. To obtain permission, the IRS should be contacted by telephone at (800) 829-0115.

Appendix W, "Form 944 Preparation Checklist," in NACPB's Payroll and Payroll Tax Services Guide may be used to help prepare Form 944. Specific instructions for completing the return are provided with the form. The authors' suggestions for completing the return are as follows (The line number references are to the 2009 version of Form 944.):

• Use the Original Form 944 Provided by the IRS. The following suggestions will allow the IRS to process Form 944 faster and more accurately: (a) make dollar entries without the dollar sign and the decimal point, commas are optional (Report dollars to the left of the preprinted decimal point and cents to the right of it.), (b) enter negative amounts with a "minus" sign (if possible, otherwise use parentheses), (c) file the Form 944 that has the company's preprinted name and address, (d) type or machine print entries in black ink (do not handwrite the entries), and (e) do not tear the form.
• Review the Employer Information on the Preprinted Forms. Make sure that the preprinted heading includes the correct employer identification number, employer's name and address, and the period being reported. If preprinted forms are not available, review the information for accuracy after it has been entered on a blank Form 944.
• Address Changes. Report address changes by changing the preprinted headings as necessary.
• Line 1, Wages, Tips, and Other Compensation. The amounts entered on line 1 would also be included in box 1 of the employees' Forms W-2.
• Line 2, Income Tax Withheld. This line includes federal income tax withheld on wages, tips, and other compensation such as taxable fringe benefits and supplemental unemployment compensation benefits.
• No Wages, Tips, and Other Compensation Subject to Social Security or Medicare Tax. If wages, tips and other compensation reported on line 1 are not subject to social security or Medicare tax, check the box on line 3 and go to line 5.
• Line 4a, Taxable Social Security Wages. Wages and other compensatory items subject to (not net of) social security tax of 12.4% are shown on this line, but not reported or allocated tips. The sum of wages and tips (i.e., lines 4a and 4b) for each employee should not be more than the maximum social security wage base for the year ($106,500 in 2009).
• Line 4b, Taxable Social Security Tips. This line reflects tips reported by employees to the employer on Form 4070 (Employee's Report of Tips to Employer) or a written statement. The sum of tips and wages (i.e., lines 4a and 4b) is limited to the maximum social security wage base for each employee ($106,500 in 2009). Include reported tips (up to the maximum social security wage base) even if the employer is unable to withhold the employee's share of the tax.
• Line 4c, Taxable Medicare Wages and Tips. Wages and other compensatory items (including reported tips) subject to (not net of) the 2.9% Medicare (hospital insurance) tax are shown on this line. Include reported tips even if the employer is unable to withhold the employee portion of Medicare tax. The amounts reported are not subject to a maximum wage base (i.e., there is no limit on Medicare wages).
• Line 6, Current Year's Adjustments. This line is used to adjust for differences caused by adding or dropping fractions of cents, reporting taxes on third party sick pay, and uncollected taxes on tips and group-term life insurance. 
• Line 8, Advance Earned Income Credit (EIC) Payments Made to Employees. This line shows the total amount of advance earned income credit (EIC) paid to employees during the year. See discussion beginning at paragraph 102.36 in NACPB's Payroll and Payroll Tax Services Guide for further discussion of the earned income credit.
• Line 10. This line should also include any overpayment applied from filing Form 944-X or Form 941-X.
• Line 11a. This line is used to report 65% of the COBRA premium assistance payments for assistance eligible individuals. Only take the COBRA premium assistance credit on this line after the assistance eligible individual's 35% share of the premium has been paid.
• Line 11b. This line is used for the number of individuals provided COBRA premium assistance as reported on line 12a.
• Line 13, Balance Due. This line shows any balance due with the return. If this line is under $1 it does not have to be paid. An employer should have a balance due only if their net tax liability for the year (line 9) is less than $2,500. If line 9 is $2,500 or more the employer should already have deposited all taxes due which will make the amount on line 13 (balance due) zero. Employers owing $2,500 or more that fail to make the required deposits and then pay these amounts with the return may be subject to penalties.
• Line 15, Monthly Summary of Federal Tax Liability. The first box on line 15 is checked if the amount on line 9 is less than $2,500. If the amount on line 9 is $2,500 or more, the second box is checked and the amount of the tax liability, not tax deposit, is entered on lines 15a to 15l for each month in the year. The total tax liability on line 15m must equal the total taxes on line 9. If the employer accumulated a tax liability of $100,000 or more on any day during a deposit period, Form 945-A should be completed instead of boxes 15a-15l.
• Line 16, State Abbreviation. Since states observe different holidays, this line helps the IRS verify timely filing. If taxes reported on Form 944 were deposited, employers should write in the spaces on line 16 the Postal Service two-letter state abbreviation for the state where their employment tax deposits were made either by using Form 8109 or by initiating an electronic transfer. If the employer made deposits in multiple states, "MU" should be entered in the spaces on line 16.
• Line 17, Final Return. If this is a final return, check the box on line 17 and enter the date that final wages were paid on this line. A statement showing the name of the person keeping the payroll records and the address where those records will be kept should also be attached to the final return.
• Part 4, Third-party Designee Section. A taxpayer that wants to allow the IRS to discuss its Form 944 with a designated third party should check the "Yes" box in Part 4 of the return. Common third-party designees include an employee or a paid tax preparer. The name and the five-digit personal identification number (PIN) of the specific person to contact are entered on the form. Do not enter the name of the firm who prepared the tax return. Checking the "Yes" box authorizes the IRS to call the designee with questions relating to the information reported on Form 944. If the taxpayer does not want to make a third-party designation, the "No" box in Part 4 should be checked.
• Part 5, Section for Signature. Form 944 must be signed and dated. See paragraph 105.93 in NACPB's Payroll and Payroll Tax Services Guide for a discussion on the individuals eligible to sign the form.
• Section for Paid Preparers. This section may be completed if the preparer was paid to prepare the Form 944 and is not an employee of the filing entity. The paid preparer may sign in the space provided and give the filing entity a copy of the return in addition to the copy to be filed with the IRS. This section should not be completed if the preparer is the reporting agent and has a valid Form 8655 (Reporting Agent Authorization) on file with the IRS. Completion of this section is optional by the paid preparer.

Reconciliations After preparing Form 944, the bookkeeper should reconcile it to the payroll register to determine that all amounts have been reported. Specifically, he or she should reconcile the following amounts reported on Form 944 to the payroll register:

• Federal income tax wages.
• Federal income tax withholdings.
• Social security wages.
• Social security taxes (both employees' and employer's).
• Medicare wages.
• Medicare taxes (both employees' and employer's).
• Tax deposits.
• Tax liabilities.

The bookkeeper should also recalculate the social security and Medicare taxes and determine that the employer's portion of the FICA taxes equals the employees' withholdings.

The bookkeeper should also reconcile information within the Form 944 itself. The compensation subject to federal income tax withholdings (line 1) should be reconciled to compensation subject to Medicare taxes (line 4c) and social security taxes (lines 4a and 4b). The reconciliation is necessary to ensure that the wage information is properly reported. See paragraph 105.9 in NACPB's Payroll and Payroll Tax Services Guide for a list of primary differences that arise.

Filing Paper Returns Forms 944 filed on paper should be sent to the Internal Revenue Service Center serving the state where the employer's legal residence, principal place of business, or principal office or agency is located.

Electronic Filing Form 944 can be filed electronically through the IRS's e-file program, which includes an online filing option that allows employers to electronically file Forms 944 through the internet. See paragraph 105.11 in NACPB's Payroll and Payroll Tax Services Guide for more information on the electronic filing options.

Paying the Taxes A tax due of less than $2,500 can be paid with Form 944 when it is filed. If the amount due is $2,500 or more, it cannot be paid with the form but instead must be deposited with an authorized depository or by electronic funds transfer. An employer who wants to take advantage of the 10-day extension for filing Form 944 must deposit the amount of tax due by the form's original due date even if the tax due is less than $2,500. Employers with a balance due on Form 944 of less than $2,500 can also pay the amount owed by credit card either over the phone or the internet. If paying by credit card, Form 944-V is not used.

Due Date Form 944 is due by January 31 following the end of the calendar year. If the due date falls on a Saturday, Sunday, or legal holiday, the return can be filed on the next business day. The IRS generally does not grant an extension for filing Form 944. However, Form 944 can be filed on or before the 10th day of the second calendar month following such period (i.e., a 10-day extension is allowed beyond the normal due date) if timely deposits have been made in full payment of taxes due for the period.

For more information on completing Form 944 Employer's Annual Federal Tax Return, refer to NACPB's Payroll and Payroll Tax Services Guide.