Tax News

CCH (cch.taxgroup.com) reports:

  The IRS has issued temporary and proposed regulations relating to the federal employment tax return filing requirements under
Code Sec. 6011 and to the employment tax deposit requirements under Code Sec. 6302. These temporary regulations amend the current regulations issued under Code Secs. 6011 and 6302 and are part of the IRS's effort to reduce taxpayer burden by permitting certain employers to file one return annually to report their employment tax liabilities instead of four quarterly returns. The temporary regulations affect taxpayers that file Form 941, "Employer's QUARTERLY Federal Tax Return," Form 944, "Employer's ANNUAL Federal Tax Return," and any related Spanish-language returns or returns for U.S. possessions.

Form 944 Program

  The temporary regulations allow certain employers to file an annual employment tax return, Form 944, to report their social security, Medicare, and withheld Federal income taxes rather than the quarterly Form 941. For these employers, Form 944 will replace Form 941, reducing the number of returns they are required to file each year. Most participating employers can also pay their employment taxes annually with their Form 944, rather than making monthly or bi-weekly deposits. Generally, Form 944 is due January 31 of the year following the year for which the return is filed. If the employer timely deposits all accumulated employment taxes on or before this due date, the employer will have 10 extra calendar days to file Form 944 pursuant to Reg. §31.6071(a)-1.

  Caution: Although some agricultural and domestic employers may also file annual employment tax returns, Form 944 does not replace Form 943, Employer's Annual Tax Return for Agricultural Employees, or the Form 1040 Schedule H, Household Employment Taxes. However, if an employer files Form 944, the employer may choose to report wages with respect to household employees on Form 944, instead of reporting such wages on Schedule H (Form 1040).

  Eligibility for the Form 944 Program is generally limited to employers with an annual estimated employment tax liability of $1,000 or less. The IRS will notify employers it believes are eligible; however, the temporary regulations provide that the Form 944 program is voluntary. The IRS will issue guidance informing employers how they can contact the IRS to participate in the Form 944 Program and how they can elect out if they later decide that they want to file Forms 941 instead of Form 944. Because the program is being made voluntary, beginning in tax year 2010, employers will be able to opt out for any reason if they follow procedures to be provided in future guidance.

  The temporary regulations also clarify that, for most employers, the look back period for determining deposit frequency is the 12 month period ending on the preceding June 30. For employers in the Form 944 Program, however, the look back period is the second calendar year preceding the current calendar year. For instance, the look back period for 2009 is calendar year 2007.

Deposit Rule Safe Harbor

  These temporary regulations also incorporate the safe harbor for employers who file Forms 941 that was included in the 2006 proposed regulations. The safe harbor helps small employers who file Form 941 and have an unexpected increase in their deposit liability for a quarterly return period. The temporary regulations also provide an alternate method for determining whether the taxpayer's employment tax obligations are de minimis , which is based on the employment taxes due for the prior return period. This special rule does not apply to employers who file Form 944.

  Also employers may pay their employment taxes when they timely file their quarterly returns if the taxes due for the current quarter or for the prior quarter is less than $2,500. Modifying the de minimis deposit rule to allow employers to base the determination on the employment taxes due for the immediately preceding quarter provides a safe harbor for employers regarding their deposit obligations. However, these regulations have no application to the One-Day rule, which requires employers to make a deposit on the next banking day if they accumulate $100,000 or more of employment taxes on any day during a deposit period. Due to the programming changes necessary to implement this safe harbor, the safe harbor will be available for deposit periods beginning on or after January 1, 2010.

Comments Requested

  The text of the temporary regulations also serves as the text for the proposed regulations. The IRS requests comments on the substance of the proposed regulations. Written or electronic comments must be received by March 30, 2009. Submissions should be sent to: CCA:LPDR (REG-148568-04), Room 5203, IRS, P.O. Box 7604, Ben Franklin Station, Washington, DC, 20044. Submissions may also be hand-delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to: CCA:LPDR (REG-148568-04), Courier's Desk, IRS, 1111 Constitution Avenue NW., Washington, DC, or sent electronically via the Federal eRulemaking Portal at www.regulations.gov (referencing IRS-REG-148568-04).

T.D. 9440, 2009FED ¶47,009

Proposed Regulations, NPRM REG-148568-04, 2009FED ¶49,410

Other References:

 
Code Sec. 6011

  CCH Reference - 2008FED ¶35,130B

  CCH Reference - 2008FED ¶35,130BA

  CCH Reference - 2008FED ¶35,131

  CCH Reference - 2008FED ¶35,131C

 
Code Sec. 6302

  CCH Reference - 2008FED ¶38,055A

  CCH Reference - 2008FED ¶38,055AB

  CCH Reference - 2008FED ¶38,055B

  CCH Reference - 2008FED ¶38,055BB

  Tax Research Consultant

  CCH Reference - TRC PAYROLL: 3,352.05

  CCH Reference - TRC PAYROLL: 3,352.15