Before diving into an explanation of what the lookback period is, you must first understand what the Form 941 is used for, since the lookback period is a tool specifically used to help file this form.
The 941 is also known as the Employer’s Quarterly Federal Tax Return, and needs to be filed four times a year so that the IRS can keep accurate information about monies owed, who is still employed, and who isn’t. Employees use this form quarterly to report taxes they pay for their employees. For example, income taxes, social security tax, and Medicare tax are withheld from an employee’s check and reported with the use of this particular form.
As with all forms, and all taxes, due dates and paperwork dates are specifically created and spaced out to give time for both the company and the IRS to have their information correctly reported and received. In order to help determine what a businesses deposit schedule is, they use something called the lookback period.
The lookback period is the 12 months previous, ending on June 30th of the previous year. The quarterly information found in the lookback period can help employers determine what their deposit schedule will be.
If your lookback period tax liabilities is between $1,000 and $50,000, you are a monthly depositor. This means that you only need to deposit your tax withholdings once a month.
However, if your tax liabilities are more than this amount, then you are a semiweekly depositor, which means that you deposit on either Wednesday or Friday.
If you pay your employees on Wednesday – Friday, then you deposit their tax withholdings on the following Wednesday. If you pay your employees on Saturday-Tuesday, then your payments are due on the following Friday. This provides you with time to cut your own paychecks, and then tally up the amount owed, confer with your finance adviser, and then make your payment deposits.
If you’re a new employer, then your lookback period is considered zero. This will make you monthly depositor until you have established a long running business and begin to establish a lookback period.
When working with any tax information or government forms, it is important to remember that there are difference circumstances for all forms. The Form 941 and the lookback period are just the stand expectations, so it is always recommended to check all details before assuming this is a one size fits all form.