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.
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:
Common Questions About Filing Form 945
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?
Where Can You File?
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
Line 2: Backup Withholding
Line 3: Total Taxes
Line 4: Total Deposits
Line 5: Balance Due
Line 6: Overpayment
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.
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:
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.
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.