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Picture of push pins in calendar begging the question, what is a lookback period?

What Is a Lookback Period for Forms 941 and 944?

Do you know how often you need to pay Social Security, Medicare, and federal income taxes? Use the lookback period to find out.

What is a lookback period?

You use a lookback period to determine your deposit schedule for FICA taxes (Social Security and Medicare) and federal income taxes. The lookback period is a designated time period that is used to measure how much you previously paid in taxes. Your IRS lookback period depends on if you file Form 941 or Form 944.

lookback period definition

There are two deposit schedules for Social Security, Medicare, and federal income taxes: monthly and semiweekly. Your total tax liability during the lookback period determines which schedule you must follow.

  • You are a monthly depositor if you reported a tax liability of $50,000 or less during the lookback period.
  • You are a semiweekly depositor if you reported a tax liability of more than $50,000 during the lookback period.

You must use the lookback period to determine your deposit schedule. You cannot pay your liabilities based on a previous deposit schedule or how often you pay your employees.

Determine your deposit schedule before the beginning of each calendar year. Once you determine your deposit schedule, use that schedule for the whole year.

Lookback period for Form 941

If you file Form 941, you report your Social Security, Medicare, and federal income tax liabilities on a quarterly basis.

For Form 941 filers, you have a four-quarter lookback period that spans from July 1 to June 30 the following year. Let’s say you want to determine your deposit schedule for 2018. You will calculate your total tax liability from July 1, 2016, to June 30, 2017.

Lookback Period for Calendar Year 2018

2016 2017
Quarter 3
July 1 thru Sept. 30
Quarter 4
Oct. 1 thru Dec. 31
Quarter 1
Jan 1 thru Mar. 31
Quarter 2
Apr. 1 thru June 30

Form 941 lookback period example

Let’s say Karen’s Pet Supply reported the following tax liabilities during the 2017 lookback period:

2017 Lookback Period

3rd Quarter 2015: $10,000

4th Quarter 2015: $10,000

1st Quarter 2016: $13,000

2nd Quarter 2016: $13,000

Total liability: $46,000

Because the total liability is less than $50,000, Karen’s Pet Supply is a monthly depositor.

Now, let’s look at the lookback period for the following year:

2018 Lookback Period

3rd Quarter 2016: $13,000

4th Quarter 2016: $13,000

1st Quarter 2017: $13,000

2nd Quarter 2017: $13,000

Total liability: $52,000

Because the total tax liability is now more than $50,000, Karen’s Pet Supply will become a semiweekly depositor on January 1, 2018.

Lookback period for Form 944

If you file Form 944, you report your Social Security, Medicare, and federal income tax liabilities on an annual basis.

If you will file Form 944 for the current year, or if you filed in either of the previous two years, your lookback period is the second preceding calendar year. For example, the IRS lookback period for 2018 is calendar year 2016.

Depending on how you filed in the past, you might have to look at your Form 944 for that year, or all four quarters of Form 941 for that year.

Examples

Let’s say Daniel’s Hauling Services reported the following tax liabilities during the 2017 lookback period:

2017 Lookback Period

Calendar Year 2015: $1,000

Because the total liability is less than $50,000, Daniel’s Hauling Services is a monthly depositor.

Now, let’s look at the lookback period for the following year:

2018 Lookback Period

Calendar Year 2016: $55,000

Daniel’s Hauling Services grew quickly and added several employees, increasing the total tax liability beyond $50,000. This causes Daniel’s Hauling Services to become a semiweekly depositor.

How adjustments affect the lookback period

Sometimes, you might make an error on your Form 941 or Form 944. If this happens, you can make a correction using Form 941-X or Form 944-X.

If you do make a correction, the adjustments don’t affect the total tax liability for the lookback period. You must use the amount you originally reported.

Example of an adjustment

Let’s look at the 2018 lookback period for Karen’s Pet Supply again:

2018 Lookback Period

3rd Quarter 2015: $13,000

4th Quarter 2015: $13,000

1st Quarter 2016: $13,000

2nd Quarter 2016: $13,000

Total liability: $52,000

Based on this, Karen’s Pet Supply is a semiweekly depositor.

But, let’s say there was a mistake on Form 941 one quarter.

2018 Lookback Period

3rd Quarter 2016: $13,000

4th Quarter 2016: $13,000

1st Quarter 2017: $13,000

2nd Quarter 2017: $10,000

Total liability: $49,000

Karen’s Pet Supply can file Form 941-X to make the correction. But, the business needs to use the originally reported amount in the lookback period. The business will remain as a semiweekly depositor instead of changing to a monthly depositor.

The lookback period for new employers

If you’re a new employer, you obviously haven’t paid Social Security, Medicare, and federal income taxes before. So, your tax liabilities are considered as zeros in your lookback period. This makes you a monthly depositor during your first year as an employer.

Before the beginning of the next calendar year, make sure you examine your lookback period. You might have some tax liability to consider.

Make sure your payroll taxes are always paid on time to avoid any penalties. If you use Patriot Software’s Full Service Payroll, our payroll services will handle all tax filing and deposits for you, so you’re sure to always be on time.

This article is updated from its original publication date of 4/24/2012.

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