Filling Form 945 is a duty every business owner must fulfill. While there are businesses outsourcing this part of their business, there are those who do not, especially small businesses.
This is why we would be discussing how to file Form 945, to help small business owners understand how it’s done.
Our article will also explain when you would need to file the form and when it’s due.
What Is Form 945?
Annual Return of Withheld Federal Income Tax (IRS Form 945). It’s used to report federal income tax withheld from nonpayroll payments, such as eligible retirement plan payouts.
If you run payroll, you already know that you must withhold and remit a portion of employee pay for federal income taxes and other payroll taxes.
Non-payroll payments, or any money leaving your company that isn’t utilized to pay employees for their job, are normally tax-free. However, if Form 945 is required, you must file it.
The most common purpose for an independent contractor to file Form 945 is to keep track of backup withholding. Fill it out whenever you deduct federal income taxes from a non-payroll payment, such as a contractor’s fee or an early retirement plan withdrawal.
When would you need to file a 945?
- If you withheld federal income tax from nonpayroll payments, you must file Form 945.
- As a major exception, if you withheld these taxes from the income of a foreign person, you will not file this amount on a 945, you’ll file this amount on your 1042.
- For more, visit www.irs.gov
Who must file Form 945?
The plan sponsor must file Form 945 if any federal income tax was withheld from nonpayroll payments during the plan year.
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3 reasons why your business might need to fill out Form 945
You must file Form 945 if any of the following apply to you. Although infrequent, you may encounter a few more exceptional scenarios that require you to file a Form 945.
For further information, see the IRS instructions.
1. Backup withholding
In most circumstances, you do not deduct taxes from an independent contractor’s pay. You are not responsible for ensuring that independent contractors pay their taxes, and you are not responsible for ensuring that they do so.
However, there are two exceptions to the rule to be aware of. You must withhold 24 percent of an independent contractor’s fees as backup withholding in either of the following situations:
- The independent contractor does not furnish a valid taxpayer identification number (TIN).
- You receive an IRS letter that an independent contractor is subject to backup withholding.
Once you pay a contractor $600 or more in a year, they must fill out a Form W-9, which collects their name, address, and TIN. The following January, you file Form 1099-NEC to record their earnings.
If a contractor provides you with an invalid TIN, such as a social security number (SSN), an employer identification number (EIN), or an Individual Taxpayer Identification Number (ITIN), you must withhold 24 percent of the fee until the contractor provides you with a valid TIN. To validate a contractor’s W-9, use the IRS’s TIN matching tool.
Independent contractors who failed to disclose or underreported 1099 income will receive a notice from the IRS.
2. Taxable retirement plan distributions
Let’s say you want to cash out a traditional solo 401(k) payout early (k). You must withhold 20% of the dividend for federal income tax purposes.
Form 945 is used to report and pay the amount withheld. On Form 945, you must also record withholding for other tax-favored retirement plans. Before taking a distribution, speak with a tax professional to learn more about the tax implications.
3. Gambling winnings
If your business awards gambling wins, you must file Form 945 to report federal income tax withholding. A quarter of your gambling winnings will be yours to retain.
You will be obligated to collect an additional 24 percent backup withholding if a winner fails to present a valid TIN.
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Tax Form 945
The Federal 945 form, which is intended to record withheld federal income tax, is used to report non-payroll payments. Non-payroll payments can include the following:
- Pensions, annuities, and IRA deductions;
- Military retirements;
- Gambling Winnings;
- Voluntary withholding on certain governmental payments; and
- Backup withholding
The Forms that are included with CS Professional Suite Accounting Products (Payroll Compliance) are as follows:
- Form 945 – Annual Return of Withheld Federal Income Tax
- Form 945-V – Form 945 Payment Voucher..
- And Form 945-A(p2) – Annual Record of Federal Tax Liability, page 2, you will also use;
- Form 945-A – Annual Record of Federal Tax Liability
To enable the Form 945 in your client use the following steps:
- Open your CS Professional Suite – Accounting Products client and go to File / Client Properties.
- Click on the Payroll tab and mark the 945 boxes in the Tax Forms Filed area in the top right corner of the tab.
- This will enable the form; you can view the form by going to Utilities / Payroll Tax Processing.
Form 945 Due Date”
It must be filed with the IRS by January 31st of each year, reporting withholding from the previous calendar year. If all withheld tax is deposited with the IRS on schedule, the deadline is extended to February 10th.
Form 945 A
To submit your federal tax liability for the following tax returns, use this form (depending on the dates payments were made or salaries were paid).
- Forms 945 and 945-X for federal income tax withholding on nonpayroll payments.
- Forms CT-1 and CT-1 X for both employee and employer Tier I taxes and employer Tier II taxes..
- And Forms 944 and 944-X for federal income tax withheld plus both employee and employer social security and Medicare taxes.
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FAQs
How do I deposit taxes for Form 945?
You can use the IRS Electronic Federal Tax Payment System (EFTPS) or a bank wire transfer. You may use a payment voucher if:2
- Your total taxes for the year on Form 945 Line 3 are less than $2,500 and you are paying in full with your return by the due date, or
- You make payroll tax deposits using the monthly deposit schedule. If so, you can pay with the voucher for any amount due.
When is Form 945 due?
Form 945 is an annual withholding report due on Feb. 1 following the tax year. If the due date falls on a weekend or holiday, the form is due the next business day. If you have made all your deposits on time and in full, the due date is Feb. 10. To avoid late-filing penalties, make sure your mailed-in form has the required amount of postage and that it is postmarked on or before the due date.
