Form 941 Penalties

By Jack Ori

The Internal Revenue Service requires employers to file Form 941 on a quarterly basis. This form reports all wages paid and payroll taxes withheld. Employers must also pay any additional taxes required for the quarter when filing this form. If an employer files the form or sends payments late, the IRS charges a penalty. Penalties can quickly add up if an employer is several months late or does not file this form at all.

Failure to File Penalty

If an employer fails to file Form 941 by the filing deadline for that quarter, he will receive a 5 percent penalty on all tax owed during that quarter as of 2010. This penalty is cumulative; the employer receives an additional 5 percent penalty for each month she is late up to the maximum penalty of 25 percent.

The filing deadline is usually the last day of the month in which the quarter ended. For example, the first quarter ends on April 15 of each year, so the filing deadline for Form 941 is April 30. The late-filing penalty does not apply if the employer receives an extension, presuming he files Form 941 by the extension deadline.

Failure to Pay Penalty

If an employer does not pay required taxes when submitting Form 941, he receives a failure-to-pay penalty of 0.5 percent for each month the tax is late. If the employer makes payment arrangements with the IRS to pay off tax owed in monthly installments, this penalty is reduced to 0.25 percent per month. To qualify for the reduction, the employer must file Form 941 by the filing deadline. As with failure-to-file penalties, this penalty does not apply if the taxpayer receives an extension.

Combination Penalties

If the taxpayer both files late and pays late, the amount of failure-to-file penalty is reduced by the amount of failure-to-pay penalty. For example, if an employer files Form 941 one month late and pays $3,500 in tax at that time, he will owe a penalty of $157.50. This penalty is calculated by subtracting the amount of failure-to-pay penalty due, which is $17.50 (0.5 percent x $3,500) from the amount of failure-to-file penalty due, which is $175 (5 percent x $3,500).