In an age of independent contractors and freelancers, it can be difficult for businesses to know whether workers should be classified as employees. This designation can make a world of difference, particularly in regards to tax obligations. Businesses with traditional employees need to withhold federal taxes — and report those withholdings on Form 941.
Still not sure if you owe taxes based on Form 941? Keep these considerations in mind as you determine your tax obligations:
Do You Primarily Hire Seasonal Employees?
The types of employees you hire will largely determine whether you owe 941 taxes in a particular quarter. For example, if your employees only work in the summer or during the winter holidays, you may not need to withhold federal taxes the rest of the year — and you, therefore, may be able to avoid Form 941. Be sure to alert the IRS to the seasonal nature of your employees’ work. This can be accomplished by checking a box designating seasonal employment on whichever editions of Form 941 you ultimately submit.
Do Your Employees Work on a Farm?
Agricultural employers replace IRS Form 941 with Form 943. Although similar in some respects to Form 941, Form 943 is an annually filed document, whereas 941 is required on a quarterly basis.
Are Your Workers Classified As Independent Contractors?
When you hired workers, did they complete W-2s or 1040 forms? You need to complete Form 941 will largely depend on how your workforce is classified. Be careful if you currently rely on independent contractors; the IRS is beginning to crack down on businesses who claim independent contractors but require these workers to fulfill the roles of conventional employees.
IRS Form 941 can prove surprisingly complicated, particularly if you employ a mix of full-time annual workers, seasonal workers, and independent contractors. Don’t risk getting in trouble with the IRS; let the experts from the Highland Tax Group clear up your tax situation.