taxation law services

IRS Form 944 Basics

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General Obligations To Deposit Payroll and Income Tax Withholdings

Under federal law, employers must withhold Social Security, Medicare and Federal income taxes from their employees’ paychecks and deposit them with the federal government (together with the employer’s own payroll tax contributions). In addition to the deposit requirements, the employers are also obligated to file Form 941 every quarter to report the withholdings and make up for any deficiencies in deposits (or receive a refund).

Who Must File Form 944 – the Notice Requirement

Forms 941 can be a burdensome requirement for some very small employers. While computer software has alleviated some of the problems, it has not solved them.

Therefore, the IRS designed Form 944 to assist the smallest employers, which are defined as employers whose annual liability for social security, Medicare, and Federal income tax withholding is $1,000, or less. If the IRS notifies (and this is a crucial point) such an employer that the form is to be filed, the employer may file and pay such taxes only once a year, instead of every quarter.

Notice, the “notification” requirements. If the IRS does not notify you about Form 944, you must file Form 941 each quarter. It is also appropriate to note here the exceptions for agricultural and household employers who follow their own set of rules.

If, for some reason, you do not with to file Form 944, you will need to specifically contact the IRS and make such request. After the IRS notifies you about the changes in your reporting requirements, you can start filing Forms 941. Again, until you receive an IRS notice about the change in your Form 944 filing requirements, you must file Form 944.

Form 944 Reporting Requirements

If you are required to file Form 944, you should report all the following items: wages paid, tips received by employees; federal income tax withheld; both employer’s and the employee’s share of social security and Medicare taxes; any current year’s adjustments to social security for fractions of cents, sick pay, tips, or group-term life insurance; and any credits for COBRA premium assistance payments.

Form 944 Deadline

If you are required to file Form 944, you must file it only once a year. In most situations, it should be filed by January 31 after the end of the calendar year for which you are filing Form 944. Certain extensions are available if timely full payments of deposits were made by January 31.

Complications

Various complications may arise if you are a new owner or you sell (transfer) your business. You will need to contact a tax attorney to discuss how this affects your requirement to file Forms 941 and 944.

Another set of complications may arise if your Form 944 does not match your W3 amount. Usually, this means that there has been a mistake in reporting either on Form 944 or W3.

Finally, it should be remembered that Form 944 is only one requirement for employers. There are other reporting requirements that may apply to you. You should contact a tax attorney to discuss your federal tax responsibilities as an employer.

Penalties

If you fail to comply with Form 944 requirements, various penalties and interest may apply as required by law.

Contact Sherayzen Law Office With Any Questions about Form 944

If you have any questions with respect to Form 944 or if you failed to file Form 944, contact Sherayzen Law Office for professional legal help. Our experienced tax firm will analyze your situation, help you become compliant with all of your federal tax obligations, and provide rigorous representation of your interests during your negotiations with the IRS.

Mortgage Debt Forgiveness: Key Points

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Under the current U.S. tax law, canceled debt is normally taxable to you, but there are exceptions. One of those exceptions came into existence under the Mortgage Forgiveness Debt Relief Act of 2007.

Under this law, married homeowners whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012 may exclude up to $2 million of debt forgiven on their principal residence. The limit is $1 million for a married person filing a separate return.

The exclusion applies to both, debt reduced through mortgage restructuring and mortgage debt forgiven in a foreclosure.

Not just any type of debt is entitled to the exclusion. In order to qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion. If, however, the proceeds of refinanced debt were used for other purposes (for example, to pay off credit card debt), then such proceeds do not qualify for the exclusion.

Other examples of debt that does not qualify for the exclusion include debt forgiven on second homes, rental property, business property, credit cards or car loans. In some cases, however, other tax relief provisions (e.g. insolvency) may be applicable.

If your debt is reduced or eliminated you should normally receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

In order to claim the special exclusion, you should fill out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.

Second Quarter of 2012 Underpayment and Overpayment Interest Rates

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On February 23, 2012, the IRS announced that the underpayment and overpayment interest rates will remain the same for the calendar quarter beginning April 1, 2012. The rates will be:

  • three (3) percent for overpayments (two (2) percent in the case of a corporation)
  • three (3) percent for underpayments
  • five (5) percent for large corporate underpayments
  • one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points.

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

Notice 88-59, 1988-1 C.B. 546, announced that, in determining the quarterly interest rates to be used for overpayments and underpayments of tax under section 6621, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with section 6621 which, pursuant to section 6622, is subject to daily compounding.

Interest factors for daily compound interest for annual rates of 0.5 percent are published in Appendix A of Revenue Ruling 2011-32. Interest factors for daily compound interest for annual rates of 2 percent, 3 percent and 5 percent are published in Tables 7, 9, 11, and 15 of Rev. Proc. 95-17, 1995-1 C.B. 561, 563, 565, and 569.

Payroll Tax Cut Extended to the End of 2012 and Revised Form 941

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On February 23, 2012, the Internal Revenue Service released revised Form 941 enabling employers to properly report the newly-extended payroll tax cut benefiting nearly 160 million workers.

The IRS needed to revise Form 941 due to the Middle Class Tax Relief and Job Creation Act of 2012 (enacted on February 22, 2012). Under the new law, the social security tax cut was continued until the end of 2012. This means that employees will continue to receive larger paychecks for the rest of this year based on a lower social security tax withholding rate of 4.2 percent, which is two percentage points less than the 6.2 percent rate in effect prior to 2011. This reduced rate, originally in effect for all of 2011, was extended through the end of February by the Temporary Payroll Tax Cut Continuation Act of 2011 (enacted in December of 2011).

The new law also repeals the two-percent recapture tax included in the December legislation that effectively capped at $18,350 the amount of wages eligible for the payroll tax cut. As a result, the now repealed recapture tax does not apply.

Self-employed individuals will also benefit from a comparable rate reduction in the social security portion of the self-employment tax from 12.4 percent to 10.4 percent.

For the tax year 2012, the social security tax applies to the first $110,100 of wages and net self-employment income received by an individual.

Revised Form 941 Will Need to Be Filed By Employers

The revised Form 941 is already available and will have to be filed by employers for every quarter of 2012. Failure to file Form 941 may lead to significant penalties.

Contact Sherayzen Law Office to Deal With Form 941 Penalties

If you are facing Form 941 penalties, contact Sherayzen Law Office NOW. Our experienced tax firm will rigorously and skillfully represent your interests in the IRS negotiations with respect to any Form 941 penalties.

Form W-2 Penalties

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A W-2 is required to be filed by every employer who is engaged in a trade or business paying remuneration (including noncash payments) of $600 or more for a year in which services are performed by an employee.  A W-2 must be filed for each employee for whom income, Social Security, or Medicare tax was withheld, or income tax would have been withheld if the employee had claimed no more than one withholding allowance (or had not claimed exemption from withholding on Form W-4, Employee’s Withholding Allowance Certificate).

This article will explain some of the various penalties that may apply for failure to comply with IRS rules and regulations for Form W-2.  Use of a third-party payroll service provider or reporting agent usually will not exonerate employers from ensuring that the form is properly and timely filed.

Failure to File Correct Information Returns by the Due Date

A penalty may apply under IRC Section 6721 (failure to file correct information returns) if an employer does any of the following: fails to file timely, fails to include all information required to be shown on Form W-2, includes incorrect information on Form W-2, files paper forms when e-filing is required, reports an incorrect TIN, fails to report a TIN, or fails to file paper Forms W-2 that are machine readable.  An employer may show reasonable cause in order to prevent the imposition of the penalty.

The amount of the penalty is based upon when the employer files the correct Form W-2:

1)  For forms correctly filed within 30 days (by March 30 if the due date is February 28), the penalty is $30 per form; the maximum penalty is $250,000 per year ($75,000 for small businesses).

2)  For forms correctly filed more than 30 days after the due date but by August 1, 2013, the penalty is $60 per form; the maximum penalty is $500,000 per year ($200,000 for small businesses).

3)  For forms filed after August 1, 2013, or for required Forms W-2 that have not been filed; the penalty is $100 per Form W-2; the maximum penalty is $1,500,000 per year ($500,000 for small businesses).

4)  If an employer does not file corrections, and does not meet any of the exceptions to the penalty (explained below), the penalty is $100 per information return; the maximum penalty is $1,500,000 per year.

Exceptions to the Penalty for Failure to File Correct Information Returns

Depending upon the circumstances, the penalty may not apply if an employer can demonstrate that any failure was due to reasonable cause, and not due to willful neglect. In general, a filer must be able to show that the failure was either due to an event beyond its control, or due to substantial mitigating factors; additionally, an employer must show that proper steps were taken to avoid the failure and that it acted responsibly.

The IRS or SSA may also not consider an inconsequential error or omission to be a failure to include correct information.  Errors or omissions concerning the following items, however, are never considered to be inconsequential: A TIN, a payee’s surname, and any money amounts.

Intentional Disregard of Filing Requirements

A penalty of at least $250 per form, with no maximum penalty, will apply in cases in which any failure to file a correct Form W-2 is due to intentional disregard of the filing of correct information requirements.

Failure to Furnish Correct Payee Statements

Under IRC Section 6672 (Failure to furnish correct payee statements), a penalty may apply if an employer fails to provide correct payee statements (Forms W-2) to employees, and is unable to show reasonable cause.  The penalty may apply for any of the following:  An employer fails to provide the statement by January 31, 2013, fails to include all information required to be shown on the statement, or includes incorrect information on the statement.

The amount of the penalty is based on when the employer furnishes the correct payee statement. This additional penalty is applied in the same manner, and with the same amounts, as the penalty for failure to file correct information returns by the due date under IRC Section 6721 (explained above).

Exceptions to the Penalty for Failure to Furnish Correct Payee Statements

A  employer may be able to demonstrate reasonable cause to prevent the imposition of this penalty.  Also, inconsequential errors or omissions are not considered to be a failure to include correct information.   The following items are not considered to be inconsequential errors or omissions: Dollar amounts, a significant item in a payee’s address, and the appropriate form for the information provided, (such as whether the form provided constitutes an acceptable substitute for the official IRS form).

Intentional Disregard of Payee Statement Requirements

A penalty of $250 per W-2 will apply, with no maximum penalty, for any failure to provide a correct payee statement (Form W-2) to an employee due to intentional disregard of the requirements to furnish a correct payee statement.

Civil Damages for Fraudulent Filing of Forms W-2

If an employer willfully files a fraudulent Form W-2 for payments that are claimed to be made to another person, that person may be able to sue for damages.  The IRS estimates this may cost $5,000, or more.

Contact Sherayzen Law Office for Legal Help With Form W-2 Penalties

If you an employer facing Form W-2, Form W-3, Form 941, Form 940 and other employment-tax penalties, contact Sherayzen Law Office for professional legal IRS representation.  Our experienced tax firm will vigorously represent your interests, creatively explore various defense theories, prepare any necessary tax forms and strive to secure the best resolution possible under the facts of your case.