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Fractions of Cents
Federal law requires you, as an employer, to withhold taxes from your employees’ paychecks. Each time you pay wages, you must withhold - or take out of your employees’ paychecks – certain amounts for federal income tax, social security tax, and Medicare tax (payroll taxes). Under the withholding system, taxes withheld from your employees are credited to your employees in payment of their tax liabilities.
Liability for employment taxes occurs when you actually pay the employees their wages, not when the pay period ends.
For example, if your pay period ends September 24th, but you do not pay the employees until October 1st, their wages would be reported in the fourth quarter (October, November, and December), when you actually paid the employees their wages and became liable for the tax, not the third quarter when the pay period ended.
The total Social Security and Medicare taxes on Form 941 and Form 944 may differ by a small amount from the total in your payroll records due to the fractions of cents that you gained or lost when computing separate amounts for individual employees. You may add or subtract this difference on the line for tax adjustments for fractions of cents. Generally, this should not be more than a few cents. The employee share of amounts shown in column 2 of lines 5a, 5b, or 5c, may differ slightly from amounts actually withheld from employees' paychecks due to the rounding of social security and Medicare taxes based on statutory rates. Do not use the Schedule B (Form 941) to show Federal Tax Deposits. The IRS gets deposit data from electronic funds transfers (EFTPS).
Fractions of Cents Location on Form
Fractions of cents on the 941 form can be found under Part 1 at Line 7 (Current quarter’s adjustment for fractions of cents).
Fractions of Cents Calculation
- For Semiweekly depositors, it is the total liability on the Schedule B minus line 6. This equals line 7 (Current quarter’s adjustment for fractions of cents).
- For Monthly depositors, it is the total liability for the quarter found under part 2 line 16) minus line 6. This equals line 7 (Current quarter’s adjustment for fractions of cents).
Adjusting Fractions of Cents
- For Semiweekly Depositors, adjust this amount by adjusting the liabilities on the Schedule B.
- For Monthly Depositors, adjust this amount by adjusting the liabilities on page 2 under part 2.
Acceptable Amounts for Fractions of Cents
Generally, this amount is no more than a few cents.
