Home/ Tax Filing/ Federal Taxes / 941 Processing

Federal Taxes / 941 Processing

Overview

Go to Client Functions > Tax Returns to access federal tax filing, or Client Functions > Electronic Functions > Magnetic Media for e-filing.

ProPay automates the processing of Form 941 (Employer's Quarterly Federal Tax Return) through its integrated tax liability tracking and e-filing capabilities. You can file Form 941 electronically or prepare paper returns with automatically calculated tax liabilities.

What Is Form 941 E-file?

A 941 E-File is an XML file containing all information typically found in a paper Form 941. The IRS E-File system is detailed in IRS Publication 3823. ProPay handles the technical complexities of XML file creation, allowing you to focus on accurate data entry and timely filing.

Benefits of E-Filing

  • Cost savings - Reduced paper, postage, and processing costs
  • Faster processing - Immediate IRS receipt acknowledgment
  • Fewer errors - Built-in validation checks
  • Convenient transmission - Submit multiple client returns in one batch

Key Terms and Definitions

Reporting Agent An accounting service, franchiser, bank, or other entity authorized to prepare and electronically file Forms 940 and 941 for taxpayers. Reporting agents sign all electronic returns with a single PIN signature.

ETIN (Electronic Transmitter Identification Number) A five-digit number assigned by the IRS to identify entities that transmit returns directly to the IRS.

EFIN (Electronic Filer Identification Number) A six-digit number assigned by the IRS to identify the filer by IRS district.

PIN (Personal Identification Number) A five or ten-digit confidential number used by each authorized agent or taxpayer approved to participate in the IRS E-File for Business program.

DPIN (Third Party Designee Personal Identification Number) A self-assigned five-character identification number used by third-party authorized agents. This number also appears on paper Form 941 for third-party designees.

SSN/PTIN (Preparer Tax Identification Number) A nine-character identification number that appears on paper Form 941. A PTIN starts with the letter "P" followed by 8 digits. The IRS assigns PTINs to identify responsible individuals who transmit e-files. Register at www.irs.gov/ptin to obtain a PTIN. You may use the preparer's Social Security number if a PTIN is not available.

Setting Up E-filing in ProPay

Go to Client Functions > Setup > System Setup > Electronic to configure e-filing parameters.

Step 1: Apply to the IRS

Before you can e-file, you must apply to the IRS to become an authorized e-filer. After approval, the IRS will issue various Filer IDs and PIN numbers.

Step 2: Enter Preparer Information

  1. Click Client Functions
  2. Select Setup
  3. Choose System Setup
  4. Click Electronic
  5. Enter all necessary IDs and PINs in the 941 E-File Parameters section

Step 3: Enter Client Information

  1. Click Client Functions
  2. Select Edit/Change Client
  3. Click Tax Filing and Other Info
  4. If your client has signed Form 8655, check the appropriate box indicating you have received approval to file electronically
  5. Enter the 941 Business Name Control assigned by the IRS for this client

Step 4: Configure Signatory and Designee

Review the signatory and designee requirements to ensure proper authorization. These settings determine who has authority to sign and submit returns on behalf of your clients.

Filing Form 941 Electronically

Go to Client Functions > Electronic Functions > Magnetic Media > Federal Quarterly 941 Returns to create and transmit e-file returns.

Creating E-File Returns

  1. Click Client Functions
  2. Select Electronic Processing
  3. Choose Magnetic Media
  4. Click Federal Quarterly 941 Returns
  5. Select the clients to include in the submission
  6. ProPay creates an XML file ready for IRS transmission

Transmitting Returns

ProPay creates an XML file that you upload to the IRS through their e-file website. After submission:

  • The IRS issues an acknowledgment number as receipt for filed returns
  • ProPay retains a separate file as the "official" IRS-filed copy
  • You can open this file later to review prior returns or provide proof of filing to clients

Test Files vs. Production Files

Before submitting production files, you must send at least one test file for IRS approval:

Test File Requirements:

  • Use an existing client and change the first 2 digits of the Federal ID to start with "00", OR
  • Create a new company specifically for testing

Production File Process:

  1. Print the internal report for your records
  2. View the Mag Media File to review at least one client's wages and taxes
  3. Compare the file with a printed copy of the form
  4. If everything checks out, click Upload File
  5. Log in to the IRS website and follow directions to upload the file

Tax Liability Tracking

From the Main Payroll Menu, click Taxes to access the Tax Liability screen.

Viewing Tax Liability

From the Main Payroll menu, click Taxes to view the Tax Liability screen.

The Tax Liability screen displays:

Accrued Total tax liability for the selected quarter, calculated by summing all employee detail records with dates within the quarter.

Paid Sum of all tax payments within the quarter.

Balance Difference between Accrued liability and Paid taxes.

Accessing Prior Quarter Data

To view prior quarter information:

  1. Exit and re-enter the program under a pay date within the desired quarter
    • Q1: 03/31/[year]
    • Q2: 06/30/[year]
    • Q3: 09/30/[year]
    • Q4: 12/31/[year]

    How Tax Payments Are Generated

    ProPay generates tax payments automatically when printing employee checks. Tax payment generation depends on two factors:

    A) Tax Deposit Frequency

    Defined in Employer Setup. Common frequencies include:

    • Monthly depositor
    • Semi-weekly depositor
    • Quarterly depositor

    B) Balance Due

    Calculated as the difference between Accrued liability and the sum of all tax payments for the current quarter.

    Payment Methods

    ProPay supports three tax payment formats:

    Paper Checks The program evaluates tax liability each time you print employee checks. For example, if an employer is on "Monthly Tax Deposit Frequency," the program generates a tax check on the last scheduled pay date of the month. The due date appears on the check stub and the Employer's Payroll Summary report. The client must deposit taxes by the due date shown.

    EFTPS Tax Payments For employers on "Semi-Weekly Tax Deposit Frequency," the program generates an electronic tax payment each pay date. Payments are placed in a batch file with payments from other clients. At day's end, you can transmit all tax payments in one batch to the EFTPS collection center. EFTPS holds payments until the due date, but clients must have funds available by the due date regardless of transmission timing.

    ACH Tax Impounds or Tax Payments The program creates Tax Impounds each time you print employee checks. When taxes are due, it creates Tax Payments in ACH credit format.

    Tax Impounds for Payroll Processors

    Tax impounds are funds collected by the Payroll Processor and deposited into an escrow account owned by the Payroll Processor. These funds are eventually disbursed to government agencies for tax payments.

    If you use the ACH-CREDIT method, ProPay impounds all accrued taxes regardless of due date. This may include SUI and FUTA taxes normally due later. Therefore, the impound amount may exceed current tax payments, and the Tax Liability screen may show a balance due even though taxes have been impounded.

    Accrued Impounds

    Amount owed to the Payroll Processor by the Employer, calculated as:

    Accrued Impounds = All taxes accrued for the current quarter - Any tax payments made to the government directly by the Employer - Any Impounds collected by the Payroll Processor and deposited into the Escrow account

    Paid Impounds

    Funds collected by the Payroll Processor from the employer and deposited into the escrow account.

    Impounds Balance Due

    Difference between Accrued Impounds and Paid Impounds.

    ProPay generates tax payments when they become due, ensuring that at the end of each quarter the balance due for all taxes should be zero.

    Important Notes

    Tax Payments Calculation

    ProPay generates tax payments equal to the Accrued Liability for the current quarter less any tax payments already made in the same quarter. Tax payments may not match the liability of the current pay date because ProPay always sums the entire quarter to determine the amount due.

    If you make manual entries or deletions to a prior pay date or the Tax Payments file after tax payments have been generated, this will result in either an overpayment or underpayment for that pay date.

    Tax Impounds Calculation

    ProPay generates Tax Impounds equal to the Accrued Impounds less Paid Impounds in the same quarter. Tax Impounds may not match the liability of the current pay date since ProPay always sums the entire quarter to determine the amount due. Any changes to prior pay dates will also affect the Tax Impound amount for the next pay date.

    Before printing paychecks, check the Tax Liability screen. The last row shows taxes due by tax type: 941, STWT, 940, SUI, LOCAL. Tax payments generated during check printing will equal these amounts. Impounds generated will equal the Impounds balance due. For Tax Payments or Tax Impounds to equal a specific pay date's liability, you must start with zero balances on this screen.

    Fractions of Cents

    When multiplying gross wages by 3-4 decimal SUI and FICA rates across multiple pay dates, it is impossible to perfectly match liabilities with tax payments due to rounding.

    ProPay adjusts the difference each time a payment is generated by adding a penny or two if needed to the FICA liability. However, when combining multiple pay dates, summary reports may still be off by fractions of cents. Accountants may treat this the same way as line 7a of Form 941.

    Each pay date, ProPay will adjust the amount to be impounded for taxes up to 99 cents per pay date to match the current pay date tax liability, but in some cases this may not be possible since the program needs to balance the entire quarter.

    Re-printing Tax Checks or Regenerating Electronic Tax Payments

    Go to Paychecks > Print Checks to regenerate tax payments after deleting a prior entry.

    To re-print or regenerate a tax payment:

    1. Delete the payment from the Tax file and/or Electronic Tax File
    2. Go to Paychecks > Print Checks for "Selected" employees under the same pay date as the deleted payment
    3. Do not select any employees, just click Continue
    4. The program will prompt you to print Tax checks

    Additional Resources

    • IRS Publication 3823 - 94X E-File specifications
    • Form 8655 - Reporting Agent Authorization
    • IRS PTIN Registration - Obtain or renew a Preparer Tax Identification Number
    • ProPay Help Menu - Signatory and Designee topic

    Related Topics

    ← Back to Index