How to Avoid Common Payroll Errors When Filing Form 941

With each quarter comes the responsibility of reporting withheld federal income, Social Security, and Medicare taxes from your employees’ wages, and it’s done through Form 941. 

Filing 941 forms is about more than just gathering information; it’s about ensuring accuracy in every detail, submitting on time, and keeping your payroll system error-free. While this task may seem straightforward, errors in payroll processing are more common than you might think, and they can lead to costly delays or penalties.

In this post, we’ll cover the most frequent mistakes that can affect your Form 941 filing and offer practical tips to help you avoid them. With the right steps in place, you can ensure a smooth and efficient filing process.

1) Misclassifying Workers

When you have multiple workers, the line between employees and independent contractors can become confusing. However, it is essential to ensure that you are classifying them correctly when filing your payroll forms, or you may face penalties. 

For example, if you misclassify an employee as a contractor, you may be held liable for the employee’s share of employment taxes that were not withheld. 

A few questions to consider when classifying an employee are:

• Do you have the right to control how or what the worker does in their job?

• Are the payment types, reimbursements, and other business aspects related to the worker’s job controlled by you?

• Is the work a key business aspect, and are there employee benefits or contracts? How long will the work relationship last (does it have a determined end date)?
  

Generally, the more direct control you have over a worker and their work, the more likely they are to be considered an employee. However, whatever determination you come to, ensure that each of the deciding factors is documented in case the IRS requests an explanation. 

2) Not Listing All Your Employees

In a similar vein, it is vital to know the number of employees who received compensation during the pay period.  Reporting the wrong number of employees can raise questions from the IRS, especially if the number doesn’t match the reported compensation. To avoid this confusion, only report employees who were paid during the 941 quarter’s pay period. 

Still not sure if an employee should be counted? Check if they received wages during the pay period that includes one of the dates below. This is the reference pay period used for each quarter:

• Quarter 1: March 12
• Quarter 2: June 12
• Quarter 3: September 12
• Quarter 4: December 12
  

3) Missing Wage Types

Some wage types are easy to overlook when reporting, but missing them can result in a rejected return. Ensure you’re keeping track of all the taxable wage types that apply to your business, including sick pay and tips. By keeping updated records, you’ll make sure you don’t miss any wages or taxes when filing. 

And when it’s time to start filling out your 941, always double-check that you are adding all the wage types that you paid over the past quarter. 

4) Making Errors in Calculation

With so many numbers to keep in mind from various sources, it is easy to make a calculation error. However, a mistake like this will likely raise concerns or questions from the IRS. When preparing your calculations, it is crucial to take your time and frequently check the IRS guidelines to ensure that the numbers you submit are accurate. 

5) Not Keeping Records

When it comes to reporting taxes, it is essential to maintain comprehensive records. These records include all employee payments, withheld taxes, and filed forms. Proper record keeping can save you time during potential audits and ensure compliance if the IRS asks for supporting documentation. 

Check that You’re Filing Right

Now that we’ve covered common payroll tax reporting errors, it’s time to make sure you’re filing accurately. As you prepare your Form 941 each quarter, be sure to check off these key action items:

• Verify employee classification (employee vs. contractor)

• Confirm employee count for pay period

• Include all wage types (regular wages, bonuses, tips, etc.)

• Double-check calculations and IRS guidelines

• Maintain proper records for all compensation and taxes

Final Thoughts

Form 941 is one of the most important tax forms your business will file each quarter—and it’s one that leaves little room for error. From misclassifying workers to misreporting wage types or employee counts, even a minor mistake can lead to significant problems, such as penalties, rejected returns, or IRS notices.

That’s why it’s critical to approach payroll reporting with accuracy, attention to detail, and a clear understanding of what the IRS expects. By avoiding these common mistakes and staying informed about the latest filing requirements, you can ensure your 941 forms are filed correctly and on time.

Need extra support to avoid mistakes? Consider using trusted tax filing tools or partnering with a provider that helps you file 941 online easily and accurately. The more you prepare now, the more time, stress, and money you save down the line.