Published on: February 11, 2021 Last modified: February 17, 2021

Everything You Need to Know About Filing IRS Form 945

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    You have a lot to keep track of when it comes to taxes, especially if your business works with independent contractors or other non-employee workers. One of the forms you may have to file if you make non-employee payments is Internal Revenue Service (IRS) Form 945.

    This guide will explain the purpose of IRS Form 945, including important changes for those filing 2020 business taxes, who must file Form 945, how to file it, and other important information.

    Business Tax Form 945

    What Is IRS Form 945?

    IRS Form 945 is used to report federal income tax withheld from nonpayroll payments. It summarizes the federal income taxes a business owner or bank has withheld from non-employees. This includes payments reported on Forms 1099-MISC, 1099-NEC, and Form W-2G, which reports gambling winnings. Nonpayroll payments include:

    Businesses usually report payments to non-employees using a version of Form 1099. These payments don’t usually require withholding income tax, but the IRS will require backup withholding in certain situations, like an independent contractor who never returned their W-9, and that requires filing IRS Form 945. 
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    Common Questions About Filing Form 945

    There are specific instances when an IRS Form 945 must be filed. Here we will look at who should file, when to file, and how to file.

    Who Must File?

    Any business required to withhold federal income tax (including backup withholding) from non-employee payments must file Form 945. The most common scenarios are for payments to independent contractors and withholding the 20% federal income tax payment that applies to taxable 401(k) distributions.

    You should report all federal income tax withholding from nonpayroll payments or distributions annually on one Form 945 for the calendar year as dictated by the IRS. There may be other requirements for your specific situation. Talking to a qualified tax attorney is a great idea if you have questions or need further guidance with these kinds of details.

    When Must You File?

    Any business filing Form 945 for 2020 has until February 1, 2021, to file, or February 10 if you’ve made deposits on time in full payment of the year’s taxes.

    Where Can You File?

    You can get Form 945 on the IRS’s website, and it’s interactive, so you can fill it out online and print it. The IRS encourages people to file electronically using the IRS e-file system because it:
    If you choose to file a paper return, where you send it depends on whether you’re including a payment with your form and which state you reside in.
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    How to Fill Out IRS Form 945

    Form 945 requires a detailed account of the federal income tax you’ve withheld from various nonpayroll payments. Enter dollars to the left of the preprinted line and cents to the right of it. Do not round entries to whole dollars; always include amounts down to the cent.

    Line 1: Federal Income Tax Withheld

    Enter the federal income tax that you withheld (or were required to withhold) from:
    Also include any voluntary amounts withheld on certain government payments, dividends, and other distributions by an Alaska Native Corporation (ANC).

    Line 2: Backup Withholding

    Enter any backup withholdings, including on gambling winnings. Regulated investment companies and real estate investment trusts have to report any backup withholding in the year the dividends are actually paid.

    Line 3: Total Taxes

    Add lines 1 and 2 together. If your total taxes are $2,500 or more, then the amount reported on line 3 must equal the total liability for the year reported on line 7M of the Monthly Summary of Federal Tax Liability, or line M of Form 945-A.

    Line 4: Total Deposits

    Enter the total Form 945 deposits for the year, including any overpayments applied from Filing 945-X, the adjusted annual return of withheld federal income tax, in 2020 from a 2019 return.

    Line 5: Balance Due

    The difference between line 3 and line 4 is entered on line 5 if line 3 is greater than line 4. Usually, you would only have a balance if your total taxes for the year are less than $2,500. If you can’t pay the full amount of tax you owe, you can apply for an installment agreement online.

    Line 6: Overpayment

    If line 4 is greater than line 3, enter the difference on line 6. Never make an entry on both lines 5 and 6.

    Line 7: Monthly Summary of Federal Tax Liability

    Only complete line 7 if you were a monthly schedule depositor for the whole year and line 3 is $2,500 or more.

    The form is relatively straightforward, but questions do often arise. Work with a qualified tax expert to ensure you understand what you are filling out and how to do it properly.

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    What to Avoid When Filing Form 945

    There are many things to consider when filling out Form 945. Business owners should not report federal income tax withholding from wages on this form, for example, because those go on Form W-2. In this vein, when filing:

    Working with a qualified tax advisor can help make sure you don’t miss any crucial steps or deadlines, plus answer any questions you might have throughout the process.
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    Recent Changes to Form 945

    There were a couple of new developments around Form 945 for 2020: 

    • New Form 1099-NEC: Starting in 2020, payments made to non-employees must be reported to the payee and the IRS on Form 1099-NEC, instead of 1099-MISC. Form 1099-MISC will still be used for other kinds of payments, like royalties, prizes, and rents. 
    • New filing addresses: The filing addresses have changed for some filers. 

    Make sure you avoid these mistakes and recognize the changes if you are required to file a Form 945.

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    Get Help With Form 945 From a Tax Expert

    Filing taxes can be a confusing hassle for even the most knowledgeable business owners. But they are a necessity and something you don’t want to mess up. Completing Form 945 might seem arduous, but with the right qualified tax attorney on your side, you can breathe easy.

    Call Silver Tax Group today to speak with an expert if you have questions about filing IRS Form 945.

    Get Help Filing IRS Form 945

    Get the Help you Need from a Nationwide Tax Firm today!

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