Current Period Adjustments

In certain cases, amounts reported as social security and Medicare taxes on Form 941, lines 5a–5d, column 2 (Form 943, lines 3, 5, and 7; or Form 944, lines 4a–4d, column 2), must be adjusted to arrive at your correct tax liability (for example, excluding amounts withheld by a third-party payer or amounts you weren’t required to withhold). Current period adjustments are reported on Form 941, lines 7–9; Form 943, line 10; or Form 944, line 6, and include the following types of adjustments.

Fractions-of-cents adjustment.

If there is a small difference between total taxes after adjustments and nonrefundable credits (Form 941, line 12; Form 943, line 13; or Form 944, line 9) and total deposits (Form 941, line 13; Form 943, line 14; or Form 944, line 10), it may have been caused, all or in part, by rounding to the nearest cent each time you figured payroll. This rounding occurs when you figure the amount of social security and Medicare taxes to be withheld and deposited from each employee’s wages. The IRS refers to rounding differences relating to employee withholding of social security and Medicare taxes as “fractions-of-cents” adjustments. If you pay your taxes with Form 941 (or Form 943 or Form 944) instead of making deposits because your total taxes for the quarter (year for Form 943 or Form 944) are less than $2,500, you may also report a fractions-of-cents adjustment.

To determine if you have a fractions-of-cents adjustment for 2026, multiply the total wages and tips for the quarter subject to:

Social security tax reported on Form 941, Form 943, or Form 944 by 6.2% (0.062);

Medicare tax reported on Form 941, Form 943, or Form 944 by 1.45% (0.0145); and

Additional Medicare Tax reported on Form 941, Form 943, or Form 944 by 0.9% (0.009).

Adjustment of tax on third-party sick pay.

Report both the employer share and employee share of social security and Medicare taxes for sick pay on Form 941, lines 5a and 5c (or Form 943, lines 2 and 4; or Form 944, lines 4a and 4c). If the aggregate wages paid for an employee by the employer and third-party payer exceed $200,000 for the calendar year, report the Additional Medicare Tax on Form 941, line 5d (Form 943, line 7; or Form 944, line 4d). Show as a negative adjustment on Form 941, line 8 (or Form 943, line 10; or Form 944, line 6), the social security and Medicare taxes withheld on sick pay by a third-party payer. See section 6 of Pub. 15-A for more information.

Adjustment of tax on tips.

If, by the 10th of the month after the month you received an employee’s report on tips, you don’t have enough employee funds available to withhold the employee’s share of social security and Medicare taxes, you no longer have to collect it. However, report the entire amount of these tips on Form 941, lines 5b and 5c (or Form 944, lines 4b and 4c). If the aggregate wages and tips paid for an employee exceed $200,000 for the calendar year, report the Additional Medicare Tax on Form 941, line 5d (or Form 944, line 4d). Include as a negative adjustment on Form 941, line 9 (or Form 944, line 6), the total uncollected employee share of the social security and Medicare taxes.

Adjustment of tax on group-term life insurance premiums paid for former employees.

The employee share of social security and Medicare taxes for premiums on group-term life insurance over $50,000 for a former employee is paid by the former employee with their tax return and isn’t collected by the employer. However, include all social security and Medicare taxes for such coverage on Form 941, lines 5a and 5c (or Form 944, lines 4a and 4c). For Form 943, include the social security wages and Medicare wages on lines 2 and 4, respectively; and report the social security tax and Medicare tax on lines 3 and 5, respectively. If the amount paid for an employee for premiums on group-term life insurance combined with other wages exceeds $200,000 for the calendar year, report the Additional Medicare Tax on Form 941, line 5d (or Form 944, line 4d). For Form 943, include the Additional Medicare Tax wages on line 6 and report the Additional Medicare Tax on line 7. Back out the amount of the employee share of these taxes as a negative adjustment on Form 941, line 9 (or Form 943, line 10; or Form 944, line 6). See Pub. 15-B for more information on group-term life insurance.

For the above adjustments, prepare and retain a brief supporting statement explaining the nature and amount of each. Don’t attach the statement to Form 941, Form 943, or Form 944. See the General Instructions for Forms W-2 and W-3 for information on how to report the uncollected employee share of social security and Medicare taxes on tips and group-term life insurance on Form W-2.

Example.

Cedar, Inc., filed Form 941 and was entitled to the following current period adjustments.

Fractions of cents. Cedar, Inc., determined the amounts withheld and deposited for social security and Medicare taxes during the quarter were a net $1.44 more than the employee share of the amount figured in column 2 of Form 941, lines 5a–5d (social security and Medicare taxes). This difference was caused by adding or dropping fractions of cents when figuring social security and Medicare taxes for each wage payment. Cedar, Inc., must report a positive $1.44 fractions-of-cents adjustment on Form 941, line 7.

Third-party sick pay. Cedar, Inc., included taxes of $2,000 for sick pay in column 2 of Form 941, lines 5a and 5c, for social security and Medicare taxes. However, the third-party payer of the sick pay withheld and paid the employee share ($1,000) of these taxes. Cedar, Inc., is entitled to a $1,000 sick pay adjustment (negative) on Form 941, line 8.

Life insurance premiums. Cedar, Inc., paid group-term life insurance premiums for policies in excess of $50,000 for former employees. The former employees must pay the employee share of the social security and Medicare taxes ($200) on the policies. However, Cedar, Inc., must include the employee share of these taxes with the social security and Medicare taxes reported in column 2 of Form 941, lines 5a and 5c. Therefore, Cedar, Inc., is entitled to a negative $200 adjustment on Form 941, line 9.

No change to record of federal tax liability.

Don’t make any changes to your record of federal tax liability reported on Form 941, line 16, or Schedule B (Form 941) (for Form 943 filers, Form 943 line 17, or Form 943-A; or for Form 944 filers, Form 944, line 13, or Form 945-A) for current period adjustments. The amounts reported on the record reflect the actual amounts you withheld from employees’ wages for social security and Medicare taxes. Because the current period adjustments make the amounts reported on Form 941, lines 5a–5d, column 2 (or Form 943, lines 3, 5, and 7; or Form 944, lines 4a–4d, column 2), equal the actual amounts you withheld (the amounts reported on the record), no additional changes to the record of federal tax liability are necessary for these adjustments.