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Payroll returns are prepared and filed every quarter and consist of a federal return (941), state withholding return (IL-941), and state unemployment return (UI-3/40). For small employers not using a payroll service, these returns may be prepared manually. Although these forms are not necessarily difficult to prepare, there are often errors that may generate a notice. Usually, these errors are easily avoidable. This article will address some inaccuracies that are frequently made on payroll returns.

Semi-Weekly Depositors

One of the most common notices received from the IRS for your federal 941 form, pertains to semi-weekly depositors. There are two types of deposit requirements, monthly depositors and semi-weekly depositors. If you are unsure which type you are considered, refer to IRS Topic 757 that discusses the “look-back period” and will idenfity which type of depositor you are. The biggest issue with semi-weekly depositors is that they do not remit their payroll taxes within the correct time frame which results in a penalty. The interest and penalty are assessed based on the amounts and dates reported on their Schedule B for their Fed 941 return. If your pay date is on Wednesday, Thursday, or Friday, you have until the following Wednesday to deposit your taxes via EFTPS. If your pay date is on Saturday, Monday, or Tuesday you have until the following Friday to deposit your taxes via EFTPS. The liability reported on schedule B should correspond with the deposits made electronically.

State Returns

Another common error that results in a notice relates to the state returns, both withholding and unemployment. To begin, the IL-941 form is fairly straightforward with preparation, except for line 8 which is the overpayment or credit amount. Most companies try to use this credit on future returns, prior to receiving their letter from the Illinois Department of Revenue. The state will reject this credit and send you a notice for underpayment, if you try to claim it, before there is written confirmation that you can take it. It may take three to six months to receive this letter, but taking it sooner will result in a penalty.

Additionally, you will generally receive a notice from the Illinois Department of Employment Security (IDES) , for using the wrong contribution rate on your return. The IDES will calculate your annual contribution rate for the following year and mail to each employer in December. If you do not receive your form, you can always call IDES at 1-800-247-4984. A representative from IDES will provide you your rate after you have verified your account number, name and address on file, and employer identification number (EIN). Beware of multiple contribution rates that may be assessed on your wages. Its possible IDES will impose a different rate if wages are more than $50,000. Each quarter IDES will mail out a pre-filled UI-3/40 form with the rate filled in for wages over and under $50,000.

Of course there are many more errors that will create a notice to be mailed out, but these are just a few common ones. If you are ever unsure of why you received a notice, you should always contact the corresponding entity along with your accountant / preparer.

Tina West

Tina West is an accounting solutions staff accountant. She has earned a bachelor’s degree from Saint Xavier University with a double major in accounting and finance. Prior to joining Selden Fox, Tina worked at a Big 4 accounting firm.