# Presentation: 792445

## IRS BURDEN REDUCTION INITIATIVEForm 941 Annualization Project -Employers’ Annual Federal Tax Program (Form 944) 

- Project Overview

## Project Purpose

- To reduce burden on small business taxpayers  by establishing new rules and processes that will allow certain employers to file their Employment Tax (ET) returns annually, as well as pay the ET tax due with their return.

## History of 941 Annualization 

- Originates from work with the Redleaf National Institute.
- Annualization of Form 941 has been studied numerous times in the past.

**Notes:**
This initiative stems from work with the Redleaf National Institute, which is a division of Resources for Child Caring (RCC), a nonprofit organization located in St. Paul, Minnesota. Founded in 1992, the Institute is committed to improving the quality of family child care by helping providers successfully manage their businesses. They also offer support to trainers, tax preparers and organizations (Family Child Care Associations, Food Program sponsors, Child Care Resource and Referral Agencies, and family child care military coordinators) who assist providers with their business.

Prior annualization efforts were typically “all or nothing”, which generated obvious concerns over incoming revenue.  Also, SSA requires the 941 data to make their quarterly actuarial projections to Treasury, so they were not able to forego quarterly information across the board.  Given that this project focuses on a portion of 941 filers, and the revenue for this group is a small percentage of the total ET tax revenue, we have been able to secure concurrence for the project from Treasury and SSA.  

## Estimated Project Timeline

- Project team work began November 2003
- Preliminary analysis started August 2003.
- Target program implementation date is January 2006, with the first return due January 31, 2007.

## Program Participation Criteria

- Targeted Taxpayers
- Mail Notification by IRS
- Other Qualifiers

**Notes:**
The requirement of an active MFT 01 for four quarters is necessary to determine those entities that are $1000 or less per year.  For those TP’s with less than 4 quarters of filing history, their average total tax liability must be $250 or less per quarter.  New businesses who identify that they expect to pay less than $1000 in tax (about $4000 per year in wages) can be set up in our Master File as annual filers by contacting the Service.  We are working on changing the SS-4 form (both print and the on-line version) so that taxpayers can indicate their expected wage amounts to be paid and can be entered into MF as either a 941 or 944 filer, as appropriate.

Program Participation Criteria:

Targeted taxpayers-The current proposed threshold amount is for those taxpayers who owe $1000 or less in total Employment Tax liability per year.

Taxpayers who meet this criteria will be identified by the Service and notified, by letter, that they are in the annual filing program until further notice. 

Taxpayers who believe they qualify, such as new businesses, can contact IRS to be placed into the program.

## Program Participation (cont)

- This group of employers must file a Form 944, Employer’s Annual Federal Tax Return and pay their annualized employment tax liability by 1/31 each year.  This return will cover the preceding calendar year’s Employment Tax period.  These employers will not file any Form 941s.
- Taxpayers who believe their business will grow and may owe more than $1000 in total ET _or_ who wish to continue electronically filing and paying Forms 941 quarterly should contact the Service to be changed back to a 941 filing requirement.

## Program Participation (cont.)

- _Events that will make the employer ineligible_
- _for annual filing in a subsequent year:_
- Employer exceeds currently proposed threshold amount of $1,000 Employment Tax liability per year.
- Compliance determines the TP must file on a quarterly basis (941).
- In both cases the taxpayer will be notified of the change.

## Program Participation (cont.)

- Note:  If the taxpayer’s business grows during the year and their total tax liability exceeds _$2,500_ (approximately $10,000 in wages), they will need to make Federal Tax Deposits (FTD) in accordance with the current FTD guidelines.

## Significant Benefits of Annualizing Form 941 (new Form 944) Taxpayer Burden Reduction Initiative

- Taxpayers can file a single return with payment.
- An estimated 1 million (17%) of the approximately  6 million Form 941 filers are eligible.
- Taxpayer Burden is significantly reduced.

**Notes:**
Estimated reduction in return preparation time alone of 5.4 million hours based on the Form 941 stated return prep time of 1 hour, 49 minutes per return times 3 million fewer returns.   Using the A. D. Little Method, the total hours saved is 46.2 million for an estimated 1 million taxpayers (x3 returns), again using the 941 stated time for total “941” time of 15 hours 24 minutes (includes recordkeeping, learning about the form, preparing the form and copying, assembling, and sending the form to IRS).

Annualizing Form 941 (new Form 944) offers small business taxpayers significant burden reduction:
Taxpayers can file a single return rather than four per year and pay with their return.
Approximately 1 million (17%) of the 6 million Form 941 filers are eligible for this program.
Taxpayers will save approximately 5.4 million hours in form preparation time; the total Burden Reduction (per the A.D.Little methodology) is 46.2 million hours.

## Project Contact

- Kathy J. Welsh, Technical Project Manager, Office of Taxpayer Burden Reduction
- Phone: (630) 493-5822
- Email:  Kathy.J.Welsh2@irs.gov