What Is Form 945?
IRS Form 945, the “Annual Return of Withheld Federal Income Tax,” is used to report federal income tax held out of several different kinds of payments. A small business may need to use Form 945 to report backup withholding from non-employees. A non-employee could be a freelance writer you hired to write articles for your website or it could be an assistant who you hired to help you out for a flat rate every month. These independent contractors are usually paid via invoice, after filling out a W-9 form. Form 945 may also be used for tax withholding from:
PensionsAnnuitiesIndividual retirement accounts (IRAs)Voluntary withholding on certain government payments
When Do You Need To File Form 945?
Form 945 is due by Jan. 31 for the previous year’s taxes. You would file form 945 to report the total tax withholding amount for all payees. Throughout the tax year, you should also be making periodic payments of amounts withheld to the IRS. If you have made deposits on time and in full for the year, you have until Feb. 10 to file Form 945. The filing deadline is extended to the next business day if the due date for a year falls on a weekend or holiday. The postmark date determines whether the form has been filed on time if it has enough postage and is postmarked by the U.S. Postal Service. You may also use an IRS-designated private delivery service.
When the Amount of Tax Withheld Is Less Than $2,500
If the total amount of federal income tax you withheld from all payees during the year is $2,500 or less, you may pay the amount due when you file Form 945.
When the Amount of Tax Withheld Is More Than $2,500
If the total is over $2,500 for the year, you must make either monthly or twice-weekly deposits depending on the total withholding amount for the year. You may make monthly deposits if your total withholding for all payees is $50,000 or less. If the total is more than $50,000, you must make payments twice a week.
When To Take Backup Withholding
Small businesses don’t normally need to withhold federal income taxes from non-employees, but there are some cases when this is necessary. Backup withholding is normally required when the taxpayer ID number of a payee is missing or incorrect on the W-9 form used to report taxpayer IDs of non-employees. You must take backup withholding from payments at the rate of 24% of the amount paid. For example, if you paid a freelance web designer $1,000 for work creating your website, you must withhold $240 in federal income taxes from the payment. This applies to payments to an independent contractor that are reported on Form 1099-NEC for non-employee compensation and other payments reported on other 1099 forms.
How To Complete Form 945
Before you complete this form, you will need to gather some information. Add all the federal income taxes you withheld from all payees for Form 945 and separate the backup withholding from other types of withholding. Gather information about any payments you made to the IRS during the year for Form 945 withholding.
Filling Out Form 945
There are seven important lines to fill out on Form 945:
Line 1: Enter the federal income tax withheld for all payees except for backup withholdingLine 2: Enter the total backup withholding for the yearLine 3: Total of Lines 1 and 2Line 4: Enter the total deposits you made for the yearLine 5: If Line 3 is more than Line 4, enter the difference on Line 5Line 6: If Line 4 is more than Line 3, enter the difference on Line 6, then select the appropriate box: “Apply to Next Return” or “Send a Refund"Line 7: This amount is the total of federal income taxes you owe, not deposits you made—it must equal the amount on Line 3
Monthly depositors must use Line 7 (a box) to detail their tax liability for each month. Twice-weekly depositors must complete Form 945-A to detail all deposits for the year.
How To File Form 945
You may file Form 945 electronically, using the IRS e-filing service, or by using the services of an IRS-authorized tax professional. You may also mail your form to the IRS. The filing address depends on where your business is located and whether you are making a payment with the form. The mailing addresses are on page 3 of the Instructions for Form 945.
