If you pay wages to one or more employees that total no more than about $4,000 a year (so that your employment tax payments do not exceed $1,000), as is the case for nearly a million small employers, you no longer have to file quarterly employer tax returns. Instead, you can be a part of the new Form 944 Program and file an annual return -- Form 944, Employer's Annual Federal Tax Return, which is expected to be posted on the IRS Web site at the end of January 2006.
Are you eligible for this new reporting in 2006? The IRS expects to send notices to eligible small employers in the first half of February 2006. If you think you're eligible but failed to receive a notice, call the IRS at a special phone number for this purpose--800-829-0115--by April 1, 2006, so you can be included in the new Form 944 program.
If you participate in this program, you pay your federal employment taxes when you file the return. But if you discover at the time of filing next January that your tax payments exceed $1,000, you have the opportunity to avoid late-deposit penalties by depositing these taxes by March 15, 2007.
Caution: Even though your federal filing for employment taxes may be on an annual basis — i.e., your 2006 return would not be due until January 31, 2007 -- your state employer-filing obligation may continue to be quarterly, so check with your tax advisor.
Read more tax advice from Barbara Weltman in the Tax Strategies Resource Center.