payroll tax returns

Payroll Management acts as an important limb in the smooth running of any business enterprise. Payroll not just involves the administration of the recording and payments process related to employees in an enterprise. One also needs to ensure thorough reconciliation of the payroll expense accounts regularly for the relevant periods.

Payroll Reconciliation is a must for proper filing of Payroll Tax Returns of the business concerns in the USA. Let us begin a brief journey to enlighten ourselves about the different requirements of Payroll Reconciliation. We will also try to comprehend the compliance needs for filing Form 940 and 941.

What is Payroll Reconciliation?

In an Accounting sense, reconciliation means verifying the correctness of the recorded transactions with the actual transactions based on necessary details. Payroll Reconciliation is a process that involves the checking of the payroll entries of a given period using the inputs received. It also includes a comparison of the current period payroll entries with the preceding period entries. This process helps to ensure that all payroll calculations are accurate and compliant.

What is Form 940?

Form 940 is an annual form that some employers need to file with the IRS. It reports the Federal Unemployment Tax. This form helps small businesses and IRS to maintain a consensus on the amount of Federal Unemployment Tax. The employer has to report the payroll details concerning the sum of yearly wages paid to full-time and part-time workers up to the limit of $7000 for each employee. A percentage of the total wages leads to the calculation of the FUTA or Unemployment Tax payable to the IRS. The Federal Unemployment Tax, along with the State Unemployment Taxes, is used to fund unemployed workers.

Form 940 must be filed by the 31st of January of the year, immediately after the relevant tax year. One needs to submit form 940 if any of the two conditions are applicable:

  • The employer pays wages more than or equal to $1500 to any employee in a calendar year.
  • The employer has an employee working at any point in time for 20 or more weeks in the year.


What is Form 941?

This form is used by employers to state their Federal Insurance Contributions Act taxes or FICA Taxes. The Employer withholds half of the FICA tax liability from the employee payments, and the employer contributes the other half. FICA taxes also include medicare and social security taxes.

IRS uses this form to determine the amount of employer tax payments made during the year. Form 941 is also known as the quarterly federal tax return. One needs to file this form after every quarter. Form 941 must be filed by the close of the month succeeding the end of a given quarter.

What is the difference between Form 940 and Form 941?

The two forms, 940 and 941, may seem similar for taxpayers. However, there are some notable differences. Form 940 needs annual filing, and liable employers use it to report their Federal Unemployment Tax (FUTA) liability. On the flip side, form 941 needs to be filed every quarter and states the employee tax withholdings and employer liabilities under the Federal Insurance Contributions Act (FICA)

What falls under the process of Form 941 Payroll Reconciliation?

The reconciliation process involves a comparison of the details in form 941 with the payroll records. The IRS also compares all the four quarterly filed form 941s with the annual W-3 Form and Tax Statements. One should reconcile and make necessary adjustments to ensure a smooth filing of Form 941.

To reconcile your payroll records with form 941, you need to consider the following:

  • Federal Income Tax withholding.
  • Total Compensation to Employees.
  • Employee and Employer Contributions to Social Security and Medicare wages.

The reconciliation process includes:

  • Gathering payroll registers for the quarter
  • Checking the accuracy of all wages
  • Matching the Wage amounts with Federal Income Tax Amount Withheld
  • Comparing Social Security and Medicare Wages and Tips


What are the reasons behind the Problems in Payroll Reconciliation?
Payroll Reconciliation


Payroll Reconciliation maybe not as simple as it appears. The organizations usually face various problems to carry out proper payroll reconciliation process. Many perform improper payroll reconciliation or do not carry out the reconciliation process at all. Some of the primary reasons that lead to the problems in reconciliation include:

  1. Presence of an improper communication system

There is a lack of necessary interaction between the Payroll Staff and the other relevant departments, like the Accounting Team. The people performing the reconciliation are not able to acquire the required information.

  1. Complexities in Payroll calculations

Many complications may spring up in payroll management due to Tax or Employee-related problems. The task of making estimations for payroll return filing becomes tough.

  1. Inaccessibility of Relevant Information

The people allocated for payroll reconciliation may not get access to essential employee details, which are available only with the top-ranking members of the Accounts and Finance team.

  1. Lack of Transparency

There may also be a lack of transparency among the different people involved in the payroll reconciliation project. It may be due to a deliberate attempt to hide any discrepancies.

What are the business risks if an entity does not conduct or misconducts Payroll Reconciliation?

All business concerns should conduct Payroll Reconciliation thoroughly. Absence of appropriate payroll reconciliation can cause risks such as:

  • The Employer Contributions to Employee Benefits may not get duly disclosed in the general ledger.
  • Inadequate Provisions for Employee Leaves and Bonuses
  • Year-end Financial Statements such as the balance sheet of the business may not show the real state of affairs. Improper disclosure of items like Negative Net Pay Employees, Loan Accounts, and Stock Appreciation Rights might happen.
  • Liabilities may remain outstanding as some of the net payments due to employees and other parties are intentionally not reflected or wilfully not processed.


Consult the Accounting and Tax Maestros at Initor Global for your Payroll Reconciliation, and Payroll Tax Return Filing Needs!

Proper payroll reconciliation and scheduled filing of Payroll Tax Returns can seem like an arduous job for business enterprises. Any non-compliance in the required process can lead to penalties from the IRS. In the face of such worries, you can trust the expertise of Initor Global. With our Premier Payroll Outsourcing Services, we can support you at every step. Get the right assistance. Contact us today!