Taming the dreaded 941: Filling in the final lines
By Cora M. Barnhart • Bankrate.com

Whew! You've made it to the final stretch. Form 941 -- the Employer's Quarterly Federal Tax Return -- will be a memory before you know it. At least until the next quarter.

Previous tax tips have taken you line-by-line through the form, which business people have identified as their least-favorite tax chore (see links above for earlier stories).

We'll conclude with a look at lines 12 through 17. Line 12 addresses the earned income credit (EIC) payments advanced to employees. Lines 13 and 14 are straightforward math, or entries from your records. Lines 15 and 16 address any balance due or overpayment that has occurred. And Line 17 summarizes your monthly Federal Tax Liability.

Line 12 -- Advances to your employees
Taxpayers with an income below a certain level can claim the earned income credit (EIC). That limit is highest for parents filing jointly, lower for those filing singly -- and very low for people without children. Employees who qualify may decide to receive part of the EIC in advance instead of waiting to claim the credit when they file their tax returns.

If you have an employee who is eligible for advanced payments, have him provide a completed Form W-5. Of course, you will have to start making the advance EIC payments right away.

Employers usually take care of this by adjusting withheld income tax and employee and employer Social Security and Medicare taxes.

What if the total advanced EIC payments exceeds total taxes for the quarter? There are two ways to go here. You could claim a refund, but it may be easier to just apply the credit to next quarter's return. Include a statement with your return that clarifies the amount of excess payment(s) and the pay period(s) in which it was paid.

Lines 13 and 14 -- Data entry
Line 13 asks for you to simply subtract line 12 from line 11. Do it.

Line 14 asks you to enter your total payments for the quarter, including overpayment applied from a previous quarter. Enter it.

Lines 15 and 16 -- Balance due or overpayment
First off, if the balance due on line 15 is less than $1, the IRS will let you slide. Most employers won't have a balance due unless their net tax liability for the quarter on line 13 is less than $1,000. In cases where this amount is $1,000 or more and the employer has deposited all taxes on time, the balance due on line 15 should be zero.

Employers who don't make deposits as required should beware. Paying their taxes with Form 941 subjects them to a possible penalty.

Employers who deposited more than necessary for the quarter have two choices. They can request a refund or apply the overpayment to the next return. Make sure you check the appropriate box. Failing to check either box means your overpayment will be applied to your next return.

Line 17 -- Monthly Summary of Federal Tax Liability
This area summarizes tax liability, not deposits made. So if the amount you entered on line 13 is less than $1,000, DON'T complete line 17 or Schedule B of Form 941.

The only taxpayers who have to deal with line 17 are those who were monthly schedule depositors for the entire quarter. Monthly schedule depositors are those taxpayers whose Form 941 taxes reported for the lookback period are $50,000 or less. What is the lookback period? This consists of the four consecutive quarters ending on June 30 of the prior year. For example, the lookback period for the year 2000 begins July 1, 1998, and ends June 30, 1999.

Were you a semiweekly schedule depositor during any part of the quarter? The IRS doesn't want you to complete columns (a) through (d) of line 17. Instead, complete Schedule B of Form 941.

There is one other point worth mentioning regarding adjustments on this line. Suppose a net adjustment during a month is negative. This could occur, for instance, from correcting an over-reported liability in a prior period. Don't enter a negative amount on this line. Enter zero and carry over the unused portion of the adjustment to the next month.

Whew. You're done.

-- Posted: May 11, 2000