Tips for Completing Form 941
By Rollie Dimos | Compensation & Payroll
A pastor recently contacted me and said, “The IRS just sent us a letter saying we failed to submit form 941 for the 3rd quarter of last year. What is this form, and were we supposed to send one in?”
Maybe your church also received this letter recently. You’re not alone—a lot of churches are getting these letters. Let me tell you why.
The IRS Form 941, Employer’s Quarterly Federal Tax Return, is designed for employers to report wages that have been paid, federal income tax that has been withheld, the employer and employee share of social security and Medicare taxes, and other payroll-related information.
According to the form’s instructions, the IRS requires the following to be reported on the Form 941:
• Wages you’ve paid.
• Tips your employees reported to you.
• Federal income tax you withheld.
• Both the employer and the employee share of social security and Medicare taxes.
• Additional Medicare Tax withheld from employees.
• Current quarter's adjustments to social security and Medicare taxes for fractions of cents, sick pay, tips, and group-term life insurance.
• Qualified small business payroll tax credit for increasing research activities.
The IRS knows when Form 941 is missing because they reconcile the amounts reported on the quarterly Forms 941 with the annual Form W-2 amounts (and Form W-3, Transmittal of Wage and Tax Statements).
If the total amounts don’t agree, the IRS or Social Security Administration may contact you. Therefore, it is important the following amounts agree on the 941 and W-2/W-3:
• Federal income tax withholding.
• Social security wages.
• Social security tips.
• Medicare wages and tips.
All employers, including churches, need to file a Form 941 on a quarterly basis once they start paying wages. And they must continue to file this form as long as the organization is in existence. According to the IRS, “after you file your first Form 941, you must file a return for each quarter, even if you have no taxes to report, unless you filed a final return…” The only employers who are exempt from filing Form 941 every quarter are seasonal employers, employers of household staff or farm employees. Most churches will not qualify for that exemption.
What confuses many churches is when the pastor is the only employee. As stated in the IRS instructions for Form 941,
“Federal law requires you, as an employer, to withhold certain taxes from your employees' pay. Each time you pay wages, you must withhold—or take out of your employees' pay—certain amounts for federal income tax, social security tax, and Medicare tax. You must also withhold Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Under the withholding system, taxes withheld from your employees are credited to your employees in payment of their tax liabilities.”
However, churches are not required to withhold federal taxes from the minister’s pay. Additionally, a church should never withhold social security and Medicare taxes from a minister’s pay. As a result, many churches do not withhold taxes from their minister-employees.
Does the church still have to file a Form 941 if there are no taxes withheld? According to the IRS, the answer is yes. But fortunately, Form 941 isn’t difficult to fill out.
*Important tip: Housing allowance is not considered wages for the Form 941. Just like housing allowance isn’t included as wages in Box 1 on the Form W-2, it should not be included as wages in line 2 of the Form 941.
The Form 941 is due the last day of the month that follows the end of the quarter. For example:
When to File Form 941
|Quarter||End of Quarter||Due Date|
|1 – January, February, March||March 31||April 30|
|2 – April, May, June||June 30||July 31|
|3 – July, August, September||September 30||October 31|
|4 – October, November, December||December 31||January 31|
For further help, see the Form 941 instructions for step-by-step instructions for each line on the form.