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Form 945 – Annual Return of Withheld Federal Income Tax

November 21, 2023 by Rudy Mahanta, CPP

Form 945, Annual Return of Withheld Federal Income Tax, is the cornerstone for reporting all “nonpayroll’ withheld taxes. Nonpayroll taxes encompass amounts withheld from various sources, including gambling winnings, retirement pay for service in the U.S. Armed Forces, pensions, annuities, IRAs, and certain other deferred income, and backup withholding concerning reportable payments. All income tax withholding reported on Forms 1099 or Form W-2G must be reported on Form 945. Form 945 may also be used to report backup withholding for compensation paid to H-2A visa holders who fail to furnish their taxpayer identification number.

Who Must File

Employers who withhold or are required to withhold federal income tax (including backup withholding) from nonpayroll payments must file Form 945. If an employer doesn’t have a nonpayroll tax liability for a specific year, they are not required to file Form 945. Form 945 should not be used to report withholding required to be reported on Form 1042, the Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.

Form 945A

Form 945A, Annual Record of Federal Tax Liability, serves as a daily log of federal tax obligations. Semiweekly and next-day depositors must complete and attach Form 945A to Form 945. Monthly depositors need not complete Form 945A unless they accrue a one-day tax liability of $100,000 or more, in which case they become semiweekly depositors for the remainder of the year.

Facsimile Signature

Corporate officers or duly authorized agents may sign Form 945 by rubber stamp, mechanical device, or computer software program.

IRS Unveils Draft Instructions for the 2023 Annual Withholding Return

In the ever-evolving landscape of tax regulations, businesses must stay ahead of the curve. The IRS has given us a glimpse into what the upcoming tax year holds with the release of the draft instructions for the 2023 Form 945, the Annual Return of Withheld Federal Income Tax. Let’s delve into the specifics to ensure you’re well-prepared for your tax obligations in the coming year.

A Closer Look at the Form 945 Updates

At its core, Form 945 serves as the linchpin for businesses, allowing them to report federal income tax withheld from nonpayroll payments. If you’re an employer who withholds federal income tax, including backup withholding, from nonpayroll sources like pensions, military retirement, gambling winnings, specific government payments, or those subject to backup withholding, Form 945 is your annual record-keeper. It consolidates all federal income tax withholdings from these nonpayroll avenues into one comprehensive document.

The filing deadline for the 2023 Form 945 is January 31, 2024. However, the IRS has shown understanding for diligent businesses. If you’ve consistently met your tax obligations throughout the year by making timely deposits, you gain a little breathing room. In this case, the deadline extends to February 12, 2024, providing you with a few extra days to ensure your records are in order. (Remember, the extension to February 12 is due to February 10 falling on a Saturday.)

Filing Methods Demystified

While the IRS strongly advocates for electronic filing due to its efficiency and speed, they recognize that some businesses still prefer the traditional paper route. If you’re one of them, the method you choose depends on whether a payment accompanies Form 945. The details, including specific mailing addresses, can be found in the Form 945 instructions. The good news? These addresses remain unchanged, providing a familiar path for those accustomed to the paper trail.

Addressing Errors with Form 945-X

We’re all human, and mistakes happen. If you find an error on a previously filed Form 945, fear not. The solution lies in Form 945-X, also known as the Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund. When errors rear their heads, this form allows you to make necessary corrections. It’s crucial to note that Form 945-X is filed separately from the regular Form 945, ensuring clarity and accuracy in your tax records.

Embracing Electronic Fund Deposits

In our digital age, electronic transactions have become the norm, and federal tax deposits are no exception. Employers are mandated to utilize electronic funds transfer (EFT) for all federal tax deposits. The preferred method? Electronic Federal Tax Payment System (EFTPS) stands as the cornerstone of EFT. However, if EFTPS doesn’t align with your preferences, alternatives exist. Businesses can delegate this responsibility to tax professionals, financial institutions, payroll services, or other trusted third parties. These entities can ensure your electronic deposits are made promptly and accurately.

Peering into the Future

As businesses, we thrive on foresight. The IRS granted us a glimpse into the future with the draft release of the 2023 Form 945 in June. While the final version has yet to see the light of day, this draft version equips businesses with invaluable insights. By familiarizing yourself with the draft instructions, you can prepare your financial records and processes for the year ahead, ensuring a smooth tax season.

The IRS released a draft of the 2023 Form 945 in June. A final version has not yet been released.

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