TaxBandits Knowledge Base

Why does the IRS notify the filers through a letter to file Form 941 instead of 944?

The IRS (Internal Revenue Service) notifies certain employers to file Form 941 instead of Form 944 for reporting their payroll taxes. Here's why:

• Form 941 is for larger businesses: If your company has a relatively high amount of payroll taxes to pay throughout the year, the IRS will notify you to file Form 941. You'll need to report and pay these taxes every quarter (every three months). This form includes things like federal income tax withheld from employees' paychecks and Social Security and Medicare taxes.
• Form 944 is for smaller businesses: If your business has a lower annual payroll tax liability, the IRS will inform you to file Form 944. With this form, you only have to report and pay these taxes once a year. Form 944 is simpler and designed for smaller businesses to make the process easier.

The IRS decides which form you should use based on your past payroll tax payments. If your payments are above a certain amount, you'll be asked to use Form 941 quarterly. If they're below that amount, you'll be allowed to use Form 944 once a year. This system helps ensure that businesses with more significant tax obligations report and pay taxes more frequently, while smaller businesses have a less frequent, simpler option. Using the right form is important to avoid penalties and compliance issues. If you're not sure which form to use, it's best to contact the IRS for guidance.