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Common tax forms employers need to know: Complete guide

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8 min read

As an employer you’ll encounter a range of common tax forms that differ from those used by individuals. These forms cover various aspects of accounting such as reporting business income, managing employee payroll, and documenting business expenses. What’s more, in certain situations, the IRS may send you specific forms tailored to your business needs.

Whether you’re just starting your small business or have been running it for a while, it’s essential to familiarize yourself with the list of common tax forms in the United States below. Understanding these forms will help you fulfill your tax obligations, accurately file common tax return forms, and potentially achieve the most favorable tax outcomes for your business.

Types of common tax forms for businesses

When you run a small business, there are a number of accounting concepts that you need to be aware of, including revenue, expenses, assets, liabilities, overhead costs, and equity. There is also a long list of tax forms that you need to regularly file to ensure HR compliance and proper reporting.

The most common tax forms typically include:

  • Tax forms for when you first start a business. These forms are crucial for registering your business with the appropriate authorities and obtaining necessary tax identification numbers. They establish your business entity, such as a sole proprietorship, partnership, or corporation, and ensure you are recognized for tax purposes.
  • Small business employer tax forms. These forms ensure you comply with payroll tax requirements and accurately report and remit payroll taxes to the government.
  • Business expense tax forms. These forms allow you to claim deductions for business-related expenses incurred during the year. Properly reporting expenses can help reduce your taxable income, potentially lowering your overall tax liability.
  • Small business tax return forms. Small businesses file tax returns specific to their business structure.
  • General tax forms for small business owners. In addition to the above categories, small business owners may also have to file other general tax forms, such as 1099-MISC for reporting payments to independent contractors and Form 1040-ES for making estimated tax payments.

Filing these tax forms is crucial as it ensures compliance with tax laws, helps you avoid penalties and interest for late or incorrect filings, maximizes deductions, and provides a clear financial picture of your business to both the government and yourself. Keeping proper records and the timely filing of these forms can contribute to the financial success and stability of your small business.

How to file taxes as an employer

According to IRS data analyzed by Nolo, business owners dedicated an average of 23 hours to preparing their tax returns. NFIB’s study also revealed that a substantial majority of owners (91%) sought assistance from professional tax consultants for their most recent tax filings. The most time-consuming aspect was primarily attributed to record-keeping responsibilities. Simplifying the process can be achieved by understanding the specific tax forms and data required for accurate reporting.

To ensure compliance, you need to be aware of all of the tax filing and HR compliance dates. Keep track with our free downloadable HR compliance calendar:

hr deadlines 2024

With this in mind, let’s take a look at some of the most common tax forms that business owners and employers need to be aware of. There are, of course, many other tax forms that employers need to file, such as the W-2 used for calculating an employee’s taxable income including perks such as vacation payout, so it’s important to consult with a tax professional or visit the official IRS website for a complete list based on the specific needs of your business.

Form 1099

Form 1099 is an information return used by businesses to report various types of income paid to individuals and other businesses. It is critical for small business owners to file this common tax form as it helps the IRS track and verify income received by recipients. The form is typically used to report non-employee compensation, such as payments to freelancers, contractors, and other service providers.

So, why is 1099 form so important?

Filing Form 1099 is important for several reasons:

  • Tax compliance. Small business owners have a legal obligation to report payments made to non-employees. By filing Form 1099, they demonstrate compliance with tax laws and ensure accurate reporting of income.
  • Recipient’s tax reporting. Form 1099 helps recipients accurately report their income on their individual tax returns. Recipients use the information provided on the form to ensure they include all their earnings when filing their taxes.
  • Supporting business deductions. For small business owners, reporting payments on Form 1099 can support deductions for business expenses..
  • Establishing business relationships. Providing a Form 1099 to a contractor or vendor formalizes the business relationship and indicates that the recipient is considered an independent contractor rather than an employee.

Form 720

Form 720 is a common tax form used to report and pay various federal excise taxes. Excise taxes are taxes levied on specific goods, services, or activities, such as the sale of fuel and airline tickets.

So, why is 720 form so important?

It is important for small business owners to file Form 720 for several reasons:

  • Compliance with tax laws. Filing Form 720 ensures that small business owners comply with federal tax laws regarding excise taxes. Ignoring this obligation can lead to legal consequences.
  • Supporting revenue collection. Excise taxes are an important source of revenue for the government. By filing Form 720 and paying the appropriate excise taxes, small business owners contribute to funding various federal programs and services.
  • Transparency and accountability. Filing Form 720 provides transparency in the financial operations of a small business. It allows the IRS to monitor and verify excise tax payments, promoting accountability and fair taxation.
  • Record-keeping. Filing Form 720 requires maintaining detailed records of excise tax liabilities and payments. Proper record-keeping not only facilitates tax filing but also helps small businesses track their financial performance.

Form 940

Form 940, also known as the Employer’s Annual Federal Unemployment (FUTA) Tax Return, is a common tax form used by employers to report and pay federal unemployment taxes on behalf of their employees. The FUTA tax helps fund state unemployment programs that provide temporary financial assistance to eligible workers who lose their jobs.

So, why is 940 form so important?

It is important for small business owners to file Form 940 for several reasons:

  • Legal requirement. If a small business has employed workers during the year and paid them wages subject to federal unemployment taxes, they are required by law to file Form 940. Non-compliance can lead to penalties and interest charges.
  • Unemployment insurance funding. By filing Form 940 and paying the FUTA tax, small business owners contribute to the funding of state unemployment insurance programs. These programs provide crucial support to workers who face temporary unemployment.
  • Record of employment. Filing Form 940 provides a record of the employer’s annual employment activity and the wages subject to federal unemployment taxes. This information may be necessary for future audits or inquiries by tax authorities.
  • Financial planning. Finally, by properly calculating and paying the FUTA tax, small business owners can accurately plan for their annual tax liabilities and budget for unemployment tax expenses.

Form 1040

Form 1040 is the most common tax return form used by taxpayers to report their personal income, deductions, and tax liability to the IRS. However, while Form 1040 is primarily used by individuals, it is also important for small business owners who operate as sole proprietors, especially those who hire statutory employees or contractors.

So, why is 1040 form so important?

Filing Form 1040 is crucial for small business owners for several reasons:

  • Reporting business income. Business income and expenses are reported on Schedule C of Form 1040. This ensures accurate reporting of the business’s financial performance and tax liability.
  • Personal tax obligations. Small business owners need to report their personal income from all sources, including business income. Form 1040 allows them to consolidate all income streams and claim applicable deductions and credits.
  • Compliance with tax laws. Filing Form 1040 is a legal requirement for all taxpayers, including small business owners. Compliance ensures that they meet their tax obligations and avoid potential penalties for non-filing or underreporting.
  • Deducting business expenses. Small business owners can deduct legitimate business expenses on Schedule C to reduce their taxable income. This can lower their overall tax liability.

Form 941

Form 941, also known as the Employer’s Quarterly Federal Tax Return, is a common tax form that you use to report wages, tips, employee federal income taxes, Social Security, and Medicare. You must file this form every quarter to report employment taxes to the IRS.

So, why is the 941 Form so important?

Form 941 is crucial for small business owners for several reasons:

  • Filing Form 941 is a legal requirement for employers who pay wages subject to income tax withholding and Social Security/Medicare taxes.
  • Form 941 provides a summary of the taxes withheld from employees’ paychecks and the employer’s share of Social Security and Medicare taxes. That way, the IRS can cross-verify the employer’s tax liabilities.
  • Accurate reporting on Form 941 helps ensure that the appropriate amount of federal income tax is withheld from employees’ wages.
  • Properly filing Form 941 ensures that you have accurately recorded employees’ contributions for Social Security and Medicare and that they can access these benefits when needed.
  • Form 941 provides a comprehensive record of employment taxes paid throughout the year, facilitating accurate record-keeping for financial and tax purposes.

Form 6251

You use Form 6251 to determine whether an individual taxpayer owes the Alternative Minimum Tax (AMT) in addition to their regular income tax. The AMT is an alternative method of calculating income tax that adds certain tax preference items and disallows certain deductions. It ensures that taxpayers with substantial deductions or certain types of income pay a minimum level of tax.

So, why is 6251 form so important?

It is essential for small business owners to be aware of Form 6251 if they receive certain tax preference items or have significant deductions. Some factors that may trigger the need to file Form 6251 include:

  • Imputed income. If you provide certain fringe benefits, such as personal use of a company car, the IRS may class them as imputed income subject to AMT.
  • Incentive Stock Options (ISOs). If the small business offers ISOs to its employees, the spread between the exercise price and the fair market value of the stock may be subject to AMT.
  • Large deductions. Certain deductions, such as high state and local taxes, can increase the likelihood of triggering the AMT.

Form I-9

The Form I-9, officially known as the “Employment Eligibility Verification,” is not filed by employers. Instead, it is used by employers to verify the identity and employment authorization of individuals hired for employment in the United States.

Here’s how the process typically works:

  1. Completion by Employee: When an individual is hired for a job, they must complete Section 1 of Form I-9, providing information such as their name, address, date of birth, and citizenship status. They must also attest to their employment authorization status and, if applicable, provide documentation to support their identity and authorization to work in the U.S.
  2. Verification by Employer: The employer is responsible for completing Section 2 of Form I-9 within a certain timeframe after the employee’s hire date. This section requires the employer to examine the employee’s documentation to verify their identity and employment authorization. The employer must record the document information in Section 2 and certify that they have examined the documents.
  3. Retention by Employer: Once the form is completed, the employer must retain the Form I-9 for each employee for a specified period, either until the employee’s termination date or for a certain number of years after the employee’s hire date, whichever is later. The form must be available for inspection by authorized government officials, such as representatives from the Department of Homeland Security, Department of Labor, or the Department of Justice.

Form I-9 is a crucial part of the employment eligibility verification process in the U.S., helping to ensure that individuals hired for employment are authorized to work in the country. While the form itself is not filed with any government agency, it serves as documentation of compliance with U.S. immigration laws and regulations.

Manage finances and stay compliant with the right tools

Managing finances and ensuring tax compliance are critical aspects of running a successful small business. However, despite this fact, many businesses struggle to understand what they need to complete and when. Factorial can help with this by providing a comprehensive solution to help small business owners streamline their financial processes. That way, you can rest assured that you are on top of your tax form requirements.

For instance, Factorial’s financial management tools allow business owners to track income and expenses, create invoices, and manage cash flow effectively. By centralizing this financial data, small business owners can access real-time insights into their company’s financial health. That way, you can make informed decisions and plan for the future.

Moreover, one of the key challenges for small business owners is navigating the complex world of tax forms. Factorial’s software simplifies this process by automatically generating and filing the necessary tax forms, such as Form 941, Form 940, and Form 1099, based on the data entered into the system. As a result of this automation, you are far less likely to risk non-compliance with tax regulations, avoiding penalties and late fees.

Moreover, Factorial’s payroll software simplifies the time-consuming payroll tax process for small business owners. How? Because businesses can streamline their payroll tax responsibilities at the end of each pay period through an integrated platform, using tools like QuickBooks. As a result, businesses can automatically calculate payroll taxes and generate the most common tax forms.

Ultimately, whether you’re a new small business or an established one, Factorial’s software is, without a doubt, a valuable tool for financial management and tax compliance.

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Cat Symonds
Cat Symonds is a freelance writer, editor, and translator. Originally from Wales, she studied Spanish and French at the University of Swansea before moving to Barcelona where she lived and worked for 12 years. She has since relocated back to Wales where she continues to build her business, working with clients in Spain and the UK.  Cat is the founder of The Content CAT: Content And Translation, providing content development and translation services to her clients. She specializes in corporate blogs, articles of interest, ghostwriting, and translation (SP/FR/CA into EN), collaborating with a range of companies from a variety of business sectors. She also offers services to a number of NGOs including Oxfam Intermón, UNICEF, and Corporate Excellence - Centre for Reputation Leadership.  For more information or to contact Cat visit her website (thecontentcat.com) or send her a message through LinkedIn.

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