If you own a business or owned a business in the past and had employees, you were most likely required to file IRS Form 941 on a quarterly basis or IRS Form 944 on an annual basis. Form 941 is the quarterly report reflecting the taxes you withheld from your employees’ payroll checks as well as the employer portion owed the federal government for Social Security and Medicare taxes. In many cases, small employers pay their payroll tax liability at the same time they file the 941s. You can obtain an understanding of the IRS guidelines for filing Forms 941 and 944 on the IRS website, www.IRS.gov. You can type the term “Form 941” or “Form 944” in the search box to access the instructions.
This blog is not intended to provide instructions on when and how to complete the tax forms, rather the impact of not filing these returns may have on your bankruptcy. Depending on how the company is legally organized will impact your personal responsibility. If you are a sole proprietor, single-member LLC or 100% owner of the corporation, you are mostly likely personally responsible for the taxes. Even if the business entity is no longer doing business or has even been dissolved with the state, you are responsible for the payment of these taxes.
If you file Chapter 13 bankruptcy, you will need to have your tax returns including 941s or 944s filed with the Internal Revenue Service. At your meeting of creditors some bankruptcy districts require you to sign an affidavit stating you have filed your tax returns, inclusive of 941s or 944s, for the past four years. If you are unable to sign this affidavit, your case will not be recommended for approval or confirmation and will most likely be dismissed. If you sign the affidavit, not realizing it applies to 941s as well as your other tax returns, you will be met with a surprise. The Internal Revenue Service may file a motion to have your bankruptcy case dismissed. They may also estimate your tax liability and file a proof of claim in your bankruptcy for the amount they have estimated you owe. This claim will most likely be greater than your actual tax liability, sometimes much great. As a result, your bankruptcy may not appear viable if you cannot afford to make the Chapter 13 bankruptcy payments including the liability estimated for the payroll taxes owed.
As a result, it is extremely important to file the 941 reports as soon as you anticipate you will file bankruptcy. The taxes owed for the employee payroll taxes and reported on the 941s can be added into your monthly bankruptcy payments. As a result, you should be able to resolve any payroll tax liability to the IRS within your bankruptcy.