Small businesses should make sure to use the right form when filing employment tax returns
Some small businesses pay employment tax quarterly while others may pay it just once a year.
The IRS advises small business owners to review the rules for filing two commonly used employment tax returns. The two forms are:
These two forms are not interchangeable. A small business files one or the other. The employer should never flip-flop between the two forms on their own and should always file according to their designated filing requirement.
Here are some more details about these two forms.
Form 941, Employer’s Quarterly Federal Tax Return
• Employers use Form 941 to:
– Report income taxes, Social Security tax, Medicare tax and additional Medicare tax withheld from employee’s wages, tips and other compensation.
– Claim employment tax credits and adjustments
– Report the amount of employment taxes owed or claim an overpayment of employment taxes.
• If the IRS advises the employer to file Form 941 quarterly, they must do so.
Form 944, Employer’s Annual Federal Tax Return
• This form is for employers who owe $1,000 or less. It allows them to report employment tax liabilities only once a year, instead of quarterly.
• This form can’t be used unless an employer receives official IRS notification that they are eligilble to use this form.
• Once the employer receives notice they can file Form 944, they must file this form every year.
• They must continue to file Form 944, regardless of the tax they owe, unless the IRS notifies them differently.
If a taxpayer is not sure which form they should file, they can call the IRS at 800-829-4933 or 267-941-1000.
New things taxpayers should consider as they get ready to file taxes in 2021
When people get ready to file their federal tax return there are new things to consider when it comes to which credits to claim and what deductions to take. These things can affect the size of any refund the taxpayer may receive.
Here are some new key things people should consider when filing their 2020 tax return.
Recovery rebate credit
Taxpayers may be able to claim the recovery rebate credit if they met the eligibility requirements in 2020 and one of the following applies to them:
• They didn’t receive an Economic Impact Payment in 2020.
• They are single and their payment was less than $1,200.
• They are married, filed jointly for 2018 or 2019 and their payment was less than $2,400.
• They didn’t receive $500 for each qualifying child.
Refund interest payment
People who received a federal tax refund in 2020 may have been paid interest. The IRS sent interest payments to individual taxpayers who timely filed their 2019 federal income tax returns and received refunds. Most interest payments were received separately from tax refunds. Interest payments are taxable and must be reported on 2020 federal income tax returns. In January 2021, the IRS will send a Form 1099-INT, Interest Income, to anyone who received interest of at least $10.
New charitable deduction allowance
New this year, taxpayers who don’t itemize deductions can take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations. For more information, people should review Publication 526, Charitable Contributions.
Other refund-related reminders
• Taxpayers shouldn’t rely on receiving a refund by a certain date, especially when making major purchases or paying bills. Some tax returns may require additional review and processing may take longer.
• Refunds for taxpayers claiming the earned income tax credit or additional child tax credit can’t be issued before mid-February. This applies to the entire refund, not just the portion associated with this credit.
• The fastest and most secure way to receive a refund is to combine direct deposit with electronic filing, including the IRS Free File program. Taxpayers can track the status of their refund using the Where’s My Refund? tool.
Tips to help people stay safe online
These days most people are spending more time at home and a lot more time online. Whether people are online for work, school, a virtual gathering or shopping, online security is more important than ever.
Everyone should be mindful of risks they may encounter when they share devices, shop online and interact on social media.
Taxpayers might find the online security overwhelming, but it doesn’t have to be. Even those who aren’t super tech-savvy can stay safe online.
Remember security is important.
No one should reveal too much information about themselves. People can keep data secure by only providing what is necessary. This reduces online exposure to scammers and criminals. For example, birthdays, addresses, age and especially Social Security numbers are some things that should not be shared freely. In fact, people should not routinely carry a Social Security card in their wallet or purse.
Use software with firewall and anti-virus protections.
People should make sure security software is always turned on and can automatically update. They should encrypt sensitive files stored on computers. Sensitive files include things like tax records, school transcripts and college applications. They should use strong, unique passwords for each account. They should also be sure all family members have comprehensive anti-virus protection for their devices, particularly on shared devices.
Learn to recognize and avoid scams.
Everyone should be on the lookout for scams. Thieves use phishing emails, threatening phone calls and texts to pose as IRS employees or other legitimate government or law enforcement agencies. People should remember to never click on links or download attachments from unknown or suspicious emails. If someone calls asking for personal information, people should not to give out such details.
- Protect personal data.
Adults should advise children and teens and other young users to shop at reputable online retailers. They should treat personal information like cash and shouldn’t leave it lying around.
- Know the risk of public Wi-Fi.
Connection to public Wi-Fi is convenient and often free, but it may not be safe. Hackers and cybercriminals can easily steal personal information from these networks. Always use a virtual private network when connecting to public Wi-Fi.
Get ready to file taxes: What to do before the tax year ends
There are things taxpayers can do before the end of the year to help them get ready for the 2021 tax filing season. Below are a few of them.
Donate to charity
There is still time to make a 2020 donation. Taxpayers who don’t itemize deductions may take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying charities. Cash donations include those made by check, credit card or debit card. Before making a donation, people can check the Tax Exempt Organization Search tool on IRS.gov to make sure the organization is eligible for tax-deductible donations.
The Coronavirus Aid, Relief, and Economic Security Act changed this law. The CARES Act also temporarily suspends limits on charitable contributions and temporarily increases limits on contributions of food inventory.
Report any name or address change
Taxpayers who moved should notify the IRS of their new address. They should also notify the Social Security Administration of any name change.
Renew expiring ITINs
Certain Individual Taxpayer Identification Numbers expire at the end of this year. Taxpayers can visit the ITIN page on IRS.gov for more information on which numbers need renewal.
Connect with the IRS
Taxpayers can use social media to get the latest tax and filing tips from the IRS. The IRS shares information on things like tax changes, scam alerts, initiatives, tax products and taxpayer services. These social media tools are available in different languages, including English, Spanish and American Sign Language.
Find information about retirement plans
IRS.gov has end-of-year find tax information about retirement plans. This includes resources for individuals about retirement planning, contributions and withdrawals. The CARES Act retirement plan relief waived required minimum distributions during 2020 for IRA or retirement plan accounts. Also, eligible individuals can take a coronavirus-related distribution of up to $100,000 by December 30, 2020 and repay it over three years or pay the tax due over three years.
Contribute salary deferral
Taxpayers can make a salary deferral to a retirement plan. This helps maximize the tax credit available for eligible contributions. Taxpayers should make sure their total salary deferral contributions do not exceed the $19,500 limit for 2020.
Think about tax refunds
Taxpayers should be careful not to expect getting a refund by a certain date. This is especially true for those who plan to use their refund to make major purchases or pay bills. Just as each tax return is unique to the individual, so is each taxpayer’s refund. Taxpayers can take steps now to get ready to file their federal tax return in 2021.