How to Calculate IRS 941 Penalties

by Linda Richard; Updated September 26, 2017

Employers must file quarterly tax returns for their business. The Internal Revenue Service expects employers to file Form 941 to report wages paid, tips received, taxes withheld and submission of Social Security and Medicare taxes. Failure to file IRS Form 941 or to deposit taxes owed can cost the employer penalties. If you have no employees, you are not required to file Form 941.

Filing Form 941

Form 941 is a quarterly report you must file the last day of the month following the quarter reported. The January through March quarter must be reported April 30, for example. If the last day of the month falls on a non-business day, you may file the following day. Under some circumstances, you may submit your Form 941 and deposit the tax at the same time with Form 941-V. Your net taxes must be under $2,500 for the last quarter and the quarter for which you are filing, along with some other qualifications. If you file Form 941 and include with it an amount that you should have deposited, you may incur penalties.

Failure Penalties

The IRS assesses failure to file penalties and failure to pay penalties. Failure to file penalties are 5 percent of the unpaid tax due for each month you do not file Form 941 -- up to 25 percent. For every $500 in taxes owed, your 25 percent penalty may be $125. The failure to pay penalty is 1/2 of 1 percent of the amount of tax due per month, and this can accrue to 25 percent of the unpaid tax due. The IRS does not usually charge both penalties concurrently, reducing failure to file penalties with failure to pay penalties. If you can provide a reasonable explanation for failing to file or to pay, you may escape penalties.

Deposit Penalties

The IRS calculates deposit penalties by the day. Late penalties are 2 percent for deposits fewer than six days late and 5 percent for deposits made six to 15 days late. Deposits made 16 or more days late incur a 10 percent penalty. If you owe $500 in taxes, 2 percent is $10, 5 percent is $25 and 10 percent is $50. If you get a notice from the IRS about the tax due, any payment made 10 days after that notice incurs 15 percent in penalties. The 15-percent penalty also applies if you get a demand for immediate payment. If you have deposits outstanding, the IRS applies deposits you make to the most recent tax liability in the quarter. You can designate how you want the deposit applied to minimize the penalties, but you must act within 90 days of the penalty notice.

Trust Fund Recovery Penalties

If you fail to collect and pay Social Security and Medicare taxes, you may be subject to an equal amount in trust fund penalties. This penalty falls on the person the IRS decides is responsible for collecting these trust fund taxes. You must act willfully in not collecting or paying the tax for penalties to apply. With the complexity of the penalties surrounding Form 941 filing and deposits, wait for the IRS to send you a penalty notice even if you have calculated an estimated penalty. File the forms and pay the deposits, but wait for the penalty amount.

About the Author

Linda Richard has been a legal writer and antiques appraiser for more than 25 years, and has been writing online for more than 12 years. Richard holds a bachelor's degree in English and business administration. She has operated a small business for more than 20 years. She and her husband enjoy remodeling old houses and are currently working on a 1970s home.