CPA Practice Advisor - 22

A YEAR IN THE LIFE: PAYROLL

ACCOUNTANT

What is a Payroll Lookback Period
for Forms 941 and 944
By Mike Kappel

DO YOU KNOW how often you need to deposit federal income,
Social Security, and Medicare taxes? You can't deposit the taxes
whenever you feel like. Your deposit frequency is based on a
lookback period. So, what is a lookback period?
WHAT IS A LOOKBACK
reported a tax liability of $50,000 or
PERIOD?
less during the lookback period
A lookback period is the time frame
employers use to figure out their
deposit schedule for withheld FICA
tax (Social Security and Medicare) and
federal income tax. Your tax liability
during the lookback period determines
whether you deposit these employment taxes monthly or semiweekly.
Your IRS lookback period depends on
if you file Form 941 or Form 944.
As an employer, you will either
report employee wages and payroll
taxes on Form 941 or 944. You can only
use Form 944 if the IRS tells you to.
Form 941, Employer's Quarterly
Federal Tax Return, is a form that
employers use to report employee
wages and taxes quarterly. Most
employers use this form.
Form 944, Employer's ANNUAL
Federal Tax Return, is a form that
employers use to report employee
wages and taxes annually. Only very
small businesses use this form.

IRS PAYROLL DEPOSIT
SCHEDULE
Regardless of whether you file Form
941 or 944, you will either be a monthly
or semiweekly depositor. Again, your
total tax liability during the lookback
period determines which schedule you
must follow.
Take a look at the difference in
tax liability between monthly and
semiweekly depositors:
■■Monthly depositor: Employers who

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FEBRUARY 2020 ■

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■■Semiweekly Depositor: Employers who
reported a tax liability of more than
$50,000 during the lookback period
Monthly depositors must deposit
their employment taxes collected
and contributed during a month by
the 15th day of the following month.
For example, you must deposit taxes
collected in June by July 15.
Semiweekly depositors' due dates
are determined by payday. If payday
falls on a Wednesday, Thursday, and/or
Friday, deposit taxes by the following
Wednesday. If payday falls on a Saturday, Sunday, Monday, and/or Tuesday,
deposit taxes by the following Friday.
You cannot pay your liabilities
based on a previous deposit schedule
or how often you pay your employees.
Use the lookback period to determine
your deposit frequency.
Determine your deposit schedule
before the beginning of each calendar
year. Once you figure out your deposit
schedule, use it for the whole year.

LOOKBACK PERIOD FOR
FORMS 941 AND 944
Form 941 filers use a four-quarter
lookback period that starts halfway
through one calendar year (July 1)
and ends halfway through the next
calendar year (June 30).
Form 944 filers use an annual
lookback period that looks at the
employer's total tax liability during the
calendar year (January - December).

But, which calendar years do you
look at? Let's get into the nitty-gritty
of the IRS lookback period for Form 941
and Form 944 filers below.

WHAT IS THE LOOKBACK
PERIOD FOR FORM 941
FILERS?
Again, Form 941 filers report their
Social Security, Medicare, and federal
income tax liabilities on a quarterly
basis.
Form 941 filers have a four-quarter
lookback period that spans from July 1
to June 30 the following year.
Let's say you want to determine
your deposit schedule for 2020. You
would calculate your total tax liability
from July 1, 2018 to June 30, 2019.
Quarter Quarter Quarter Quarter
3
4
1
2
(2018)
(2018)
(2019)
(2019)
July 1 Sept. 30

Oct. 1 Dec. 31

Jan. 1 Mar. 31

Apr. 1 June 30

FORM 941 LOOKBACK
PERIOD EXAMPLE
Let's say Karen of Karen's Pet Supply wants to know whether she's a
monthly or semiweekly depositor in
2020.
To find out Karen's deposit schedule for 2020, we need to look at her tax
liability in quarters 3 and 4 in 2018 as
well as quarters 1 and 2 in 2019:
■■3rd Quarter 2018: $10,000
■■4th Quarter 2018: $10,000
■■1st Quarter 2019: $13,000
■■2nd Quarter 2019: $13,000
Karen's total tax liability during
the 2020 lookback period is $46,000.
Because it is less than $50,000, Karen's
Pet Supply is a monthly depositor.
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