Instructions for Form 944 (2006)

What Is the Purpose of Form 944?

Form 944, Employer's ANNUAL Federal Tax Return, is designed so the smallest employers (those whose annual liability for social security, Medicare, and withheld federal income taxes is $1,000 or less) will file and pay these taxes only once a year instead of every quarter. These instructions give you some background information about Form 944.They tell you who must file the form, how to fill it out line by line, and when and where to file it.

If you want more in-depth information about payroll tax topics, see Pub. 15 (Circular E), Employer's Tax Guide, or visit the IRS website at www.irs.gov and type “Employment Tax” in the Search box.

Use Form 944 to report all the following items.

Payroll taxes (withheld federal income tax and both
employee and employer shares of social security
and Medicare taxes) for the year.
Current year's adjustments to social security and
Medicare taxes for fractions of cents, sick pay, tips,
and group-term life insurance.
Prior years' adjustments to payroll taxes (attach
Form 941c).

Who Must File Form 944?

In general, if the IRS has notified you to file Form 944, then you must file Form 944 to report all the following amounts.

Wages you have paid.
Tips your employees have received.
Federal income tax you withheld.
Both the employer's and the employee's share of social
security and Medicare taxes.
Advance earned income tax credit (EIC) payments.

You must file a Form 944 for each year even if you have no taxes to report (or you have taxes in excess of $1,000 to report) unless the IRS notifies you that your filing requirement has been changed to Form 941 (or you filed a final return — See If your business has closed... below). See also What if you don't want to file Form 944? below.

In February, the IRS will mail eligible employers a notice to file Form 944 if their expected annual liability for social security, Medicare, and withheld federal income taxes will be $1,000 or less.

If you believe you are eligible to file Form 944 for 2006, but the IRS did not notify you, call the IRS at 1-800-829-0115 to determine if you can file Form 944. If you contact the IRS and the IRS determines you are eligible to file Form 944, we will send you a written notice that your filing requirement has been changed. To determine if you can file Form 944 to report your 2006 employment tax liability, you must contact the IRS by April 1, 2006.

New employers are also eligible to file Form 944 if they will meet the eligibility requirements. New employers filing Form SS-4, Application for Employer Identification Number, must complete line 13 of Form SS-4 indicating the highest number of employees expected in the next 12 months and must check the “yes” box or the “no” box to indicate whether they expect to have $1,000 or less in employment tax liability for the calendar year. Generally, if you pay $4,000 or less in wages subject to social security and Medicare taxes and federal income tax withholding, you are likely to pay $1,000 or less in employment taxes. If a new employer indicates on line 13 of Form SS-4 it expects to have $1,000 or less in employment tax liability for the calendar year, the IRS will notify the new employer to file Form 944 to report social security, Medicare, and withheld income taxes. The IRS's determination may be made after April 1, 2006, so long as it is made before the employer's first Form 941 would have been due.

What if you don't want to file Form 944?

You must file Form 944 if you have been notified to do so, unless you meet certain exceptions. If the IRS has notified you to file Form 944 and an exception listed below applies to you, you can contact the IRS by telephone at 1-800-829- 0115 about what form to file. To determine if you can file Form 941 quarterly to report your social security, Medicare, and withheld federal income taxes for the 2006 calendar year, you must contact the IRS by April 1, 2006, unless you are a new employer. See New employers above. You may be eligible to file Form 941 quarterly, instead of Form 944 annually, if either of the following applies.

You agree to file your quarterly Forms 941 electronically.
You expect your 2006 liability for social security,
Medicare, and withheld federal income taxes to be
more than $1,000.

If you contact the IRS and the IRS determines you can file Forms 941 instead of Form 944, the IRS will send you a written notice that your filing requirement has been changed.

Who cannot file Form 944?

The following employers cannot file Form 944.

Employers who are not notified. If the IRS does
not notify you to file Form 944, do not file Form 944.
However, as explained above, you can call the IRS at
1-800-829-0115 by April 1, 2006, to determine if you
can file Form 944.
Household employers. If you employ only household
employees, do not file Form 944. For more infor-
mation, see Pub. 926, Household Employer's Tax
Guide, and Schedule H (Form 1040), Household
Employment Taxes.
Agricultural employers. If you employ only agricultural
employees, do not file Form 944. For more information,
see Pub. 51 (Circular A), Agricultural Employer's Tax
Guide, and Form 943, Employer's Annual Federal Tax
Return for Agricultural Employees.

What if you reorganize or close your business?

If you sell or transfer your business...

If you sell or transfer your business, you and the new owner must each file a Form 944 or Forms 941, whichever applies, for the year in which the transfer occurred. Report only the wages you paid.

When two businesses merge, the continuing firm must file a return for the year in which the change took place and the other firm should file a final return.

Changing from one form of business to another—such as from a sole proprietorship to a partnership or corporation—is considered a transfer. See section 1 of Pub. 15
(Circular E). If a transfer occurs, you may need a new employer identification number (EIN). Attach a statement to your return with all the following information.

The new owner's name (or the new name of the
business).
Whether the business is now a sole proprietorship,
partnership, or corporation.
The kind of change that occurred (a sale or transfer).
The date of the change.
The name of the person keeping the payroll records and
the address where those records will be kept.

If your business has closed...

If you go out of business or stop paying wages to your employees, you must file a final return. To tell the IRS that the form for a particular year is your final return, check the box in Part 3 on page 2 of Form 944 and enter the final date you paid wages. Also attach a statement to your return showing the name of the person keeping the payroll records and the address where those records will be kept.

If you participated in a statutory merger or consolidation, or qualify for predecessor-successor status due to an acquisition, you should generally file Schedule D (Form 941), Report of Discrepancies Caused by Acquisitions, Statutory Mergers, or Consolidations. See the Instructions for Schedule D (Form 941) to determine whether you should file Schedule D (Form 941) and when you should file it. Also see Rev. Proc. 2004-53 for more information. You can find Rev. Proc. 2004-53 on page 320 of Internal Revenue Bulletin 2004-34 at Internal Revenue Bulletin 2004-34.

When Must You File?

File Form 944 by January 31, 2007, after the end of the 2006 calendar year. If you made deposits in full payment of your taxes for the year by January 31, 2007, you have 10 more calendar days after that date to file your Form 944.

After you file your first Form 944, you must file Form 944 for every year after that, even if you have no taxes to report (unless you file a final return — see If your business has closed... above) or until the IRS notifies you to file Form 941.

File Form 944 only once for each calendar year. If you filed Form 944 electronically, do not also file a paper Form 944. For more information about filing Form 944 electron- ically, see Electronic filing and payment on page 1.

If the IRS notified you to file Form 944 for 2006, file Form 944 (and not Forms 941) even if your tax liability for 2006 exceeds $1,000.

We consider your form filed on time if it is properly addressed and mailed First-Class or if it is sent by an IRS-designated private delivery service on or before the due date. See Pub. 15 (Circular E) for more information on IRS-designated private delivery services.

If any due date for filing falls on a Saturday, Sunday, or legal holiday, you may file your return on the next business day.

How Should You Complete Form 944?

Review Your Business Information at the Top of the Form

If you are using a copy of Form 944 that has your business name and address preprinted at the top of the form, check to make sure the information is correct. If you pay a tax preparer to fill out Form 944, make sure the preparer uses your business name and EIN exactly as they appear on the preprinted form. Carefully review your EIN to make sure that it exactly matches the EIN assigned to your business by the IRS. If any information is incorrect, cross it out and type or print the correct information. See also If you change your name or address... below.

If you are not using a preprinted Form 944, type or print your EIN, name, and address in the spaces provided. You must enter your name and EIN here and on the top of the second page; and if you complete and return Form 944-V, on the Form 944-V. Do not use your social security number (SSN) or individual taxpayer identification number (ITIN). Generally, enter the business (legal) name that you used when you applied for your EIN on Form SS-4, Application for Employer Identification Number. For example, if you are a sole proprietor, enter “Ronald Smith” on the “Name” line and “Ron's Cycles” on the “Trade name” line. Leave the “Trade name” line blank if it is the same as your “Name.”

Employer identification number (EIN). To make sure that businesses comply with federal tax laws, the IRS monitors tax filings and payments by using a numerical system to identify taxpayers. A unique 9-digit employer identification number (EIN) is assigned to all corporations, partnerships, and some sole proprietors. Businesses needing an EIN must apply for a number and use it throughout the life of the business on all tax returns, payments, and reports.

Your business should have only one EIN. If you have more than one and are not sure which one to use, write to the IRS office where you file your returns (using the “Without a payment” address on page 4) or call the IRS Business & Specialty Tax Line (1-800-829-4933). TTY/TDD users can call 1-800-829-4059.

If you do not have an EIN, apply for one from the IRS by mail, by telephone, by fax, or by visiting the IRS website at www.irs.gov/smallbiz. Request Form SS-4, Application for Employer Identification Number. If you do not have an EIN by the time a return is due, write “Applied For” and the date you applied in the space shown for the number.

Always be sure the EIN on the form you file exactly matches the EIN that IRS assigned to your business. Do not use your social security number on forms that ask for an EIN. Filing a Form 944 with an incorrect EIN or using another business's EIN may result in penalties and delays in processing your return.

If you change your name or address... Notify the IRS immediately if you change your business name or address.

Name change. Write to the IRS office where you would
file your return without payment to notify the IRS of any
name change. (Get Pub. 1635, Understanding Your EIN,
to see if you need to also apply for a new EIN.)
Address change. Complete and mail Form 8822,
Change of Address, for any address change.

Completing and Filing Form 944

Make entries on Form 944 as follows to enable accurate processing.

Use 12-point Courier font (if possible) for all entries if
you are using a typewriter or computer to fill out your
form.
Omit dollar signs and decimal points. Commas are
optional. (Report dollars to the left of the preprinted
decimal point and cents to the right of it.)
Leave blank any data field with a value of zero (except
lines 1 and 9).
Enter negative amounts in parentheses (if possible).
Otherwise, use a minus sign.
Enter your name and EIN on all pages and attachments.
(Filers using the IRS-preaddressed Form 944 are not
required to enter their name and EIN on page 2.)

Other Forms You Must Use

Give each eligible employee Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC). Then each eligible employee who wishes to receive any advance earned income credit (EIC) payments must give you a completed Form W-5, Earned Income Credit Advance Payment Certificate. For more information, see section 10 of Pub. 15 (Circular E) and also Pub. 596, Earned Income Credit.

Reconciling Form 944 and Form W-3

The IRS matches amounts reported on your Form 944 with Form W-2 amounts totaled on your Form W-3, Transmittal of Wage and Tax Statements. If the amounts do not agree, the IRS may contact you. The reconciled amounts are for all the following items.

Federal income tax withholding.
Social security wages.
Social security tips.
Medicare wages and tips.
Advance earned income credit (EIC) payments.

For more information, see section 12 of Pub. 15
(Circular E). See also the Instructions for Schedule D (Form 941), Report of Discrepancies Caused by Acquisitions, Statutory Mergers, or Consolidations.

Must You Deposit Your Taxes?

If your liability for social security, Medicare, and withheld federal income taxes is less than $2,500 for the year, you can pay the taxes with your return if you file on time. You do not have to deposit the taxes. However, you may choose to make deposits of these taxes even if your liability is less than $2,500. If your liability for these taxes is $2,500 or more, see the Federal Tax Deposit Requirements for Form 944 Filers chart below.

The $2,500 threshold at which federal tax deposits must be made is different from the amount of annual tax liability ($1,000 or less) that makes an employer eligible to participate in the Employers' Annual Federal Tax Program and file Form 944, Employer's ANNUAL Federal Tax Return. Designated Form 944 filers whose businesses grow during the year may be required to make federal tax deposits (see chart below), but they will still file Form 944 for the year. If your total tax liability for calendar year 2006 is more than $1,000, the IRS will notify you when to begin filing quarterly Forms 941.

Federal Tax Deposit Requirements for Form 944 Filers
If Your Tax Liability is:	Your Deposit Requirement is:
Less than $2,500 for the year	No deposit required. You may pay the tax with your return. (If you are unsure that your tax liability for the year will be less than $2,500, deposit under the rules below.)
$2,500 or more for the year, but less than $2,500 for the quarter	You can deposit by the last day of the month after the end of a quarter. However, if your fourth quarter tax liability is less than $2,500, you may pay the fourth quarter's tax liability with your timely filed Form 944.
$2,500 or more for the quarter	You must deposit monthly, or semiweekly, depending on your deposit schedule. But, if you accumulate $100,000 or more of taxes on any day, you must deposit the tax by the next banking day. See section 11 of Pub. 15.

What About Penalties and Interest?

Avoiding penalties and interest

You can avoid paying penalties and interest if you do all the following.

Pay your taxes when they are due.
File your fully completed Form 944 on time.
Report your tax liability accurately on Part 2 of the
Form 944.
Submit valid checks for tax payments.
Give accurate Forms W-2 to employees.
File Copies A of Form W-2 with the Social Security
Administration (SSA) on time and accurately.

Penalties and interest are charged on taxes paid late and returns filed late at a rate set by law. See sections 11 and 12 of Pub. 15 (Circular E) for details.

Use Form 843, Claim for Refund and Request for Abatement, to request abatement of assessed penalties or interest. Do not request abatement of assessed penalties or interest on Form 944 or Form 941c, Supporting Statement To Correct Information.

A trust fund recovery penalty may apply if federal income, social security, and Medicare taxes that must be withheld are not withheld or paid. The penalty is the full amount of the unpaid trust fund tax. This penalty may apply when these unpaid taxes cannot be collected from the employer. The trust fund recovery penalty may be imposed on all people the IRS determines to be responsible for collecting, accounting for, and paying these taxes, and who acted willfully in not doing so. For details, see section 11 of Pub. 15 (Circular E).

Where Should You File?

Where you file depends on whether you include a payment with your form.

If you are in . . .		Without a payment . . .	With a payment . . .
Special rule for Exempt Organizations; Federal, State and Local Governmental Entities; and Indian Tribal Governmental Entities; regardless of location		Internal Revenue Service Ogden, UT 84201-0005	Internal Revenue Service P.O. Box 105118 Atlanta, GA 30348-5118
Connecticut Delaware District of Columbia Illinois Indiana Kentucky Maine Maryland Massachusetts Michigan New Hampshire	New Jersey New York North Carolina Ohio Pennsylvania Rhode Island South Carolina Vermont Virginia West Virginia Wisconsin	Internal Revenue Service Cincinnati, OH 45999-0005	Internal Revenue Service P.O. Box 70503 Charlotte, NC 28201-0503
Alabama Alaska Arizona Arkansas California Colorado Florida Georgia Hawaii Idaho Iowa Kansas Louisiana Minnesota Mississippi	Missouri Montana Nebraska Nevada New Mexico North Dakota Oklahoma Oregon South Dakota Tennessee Texas Utah Washington Wyoming	Internal Revenue Service Ogden, UT 84201-0005	Internal Revenue Service P.O. Box 105118 Atlanta, GA 30348-5118
No legal residence or principal place of business in any state		Internal Revenue Service P.O. Box 409101 Ogden, UT 84409	Internal Revenue Service P.O. Box 105273 Atlanta, GA 30348-5273

Your filing or payment address may have changed from that used to file your employment tax return in prior years. If you are using an IRS-provided envelope, use only the labels and envelope provided with this tax package. Do not send Form 944 or any payments to the Social Security Administration (SSA). Private delivery services cannot deliver to P.O. boxes.

General Instructions: Understanding Form 944