What Is Form 945 Used For and When Must It Be Filed?

Form 945 is the annual IRS return businesses use to report federal income tax withheld from nonpayroll payments, including pensions, IRA and retirement plan distributions, gambling winnings, and backup withholding. It is due January 31 of the year after the withholding happened, and it reconciles the total tax you withheld against the deposits you sent to the IRS during the year.

Who Has To File

You file Form 945 if you withheld, or were required to withhold, federal income tax from any nonpayroll payment during the calendar year. If you had no nonpayroll withholding liability the entire year, no return is required.¹

Form 945 is separate from Form 941, which handles quarterly payroll taxes including Social Security and Medicare. The two should not be combined, and your Form 945 deposits must stay separate from your Form 941 deposits.

One boundary worth flagging: withholding on payments to foreign persons (nonresident aliens) does not belong on Form 945. That goes on Form 1042.¹ A business making both kinds of payments files both forms.

What Nonpayroll Withholding Covers

Nonpayroll withholding is federal income tax taken from payments that are not wages subject to Social Security and Medicare taxes. All of it gets reported on a single Form 945 for the year.² Common categories include:

Pensions, annuities, and IRA withdrawals, including distributions from 401(k), 403(b), and governmental 457(b) plans
Military retirement pay
Gambling winnings
Indian gaming profits
Government payments where the recipient elected voluntary income tax withholding
Alaska Native Corporation distributions where the recipient elected voluntary withholding
Backup withholding on interest, dividends, and other reportable payments

Backup withholding runs at a flat 24% rate.³ It kicks in when a payee fails to furnish a correct Taxpayer Identification Number for payments reported on Forms 1099 or W-2G, or when the IRS notifies you that a payee has been underreporting interest or dividends.⁴

The withholding totals on Form 945 must match what you reported on your Forms 1099-R, 1099-MISC, 1099-NEC, and W-2G for the year. Mismatches generate IRS correspondence.¹ Reconciling those numbers is the point of the form.

The Filing Deadline

Form 945 is due January 31 of the year following the withholding. For tax year 2025, the return is due February 2, 2026, because January 31 falls on a Saturday.¹ When January 31 lands on a weekend or federal holiday, the deadline moves to the next business day.

You get an extra ten days if you made all required deposits on time and in full throughout the year. Under that extension, the 2025 return is due February 10, 2026.⁵

You can file electronically through an approved e-file provider or mail a paper return to the IRS service center for your state. The correct mailing address depends on your state and whether you are enclosing a payment, so check the current year’s instructions before sending anything. The wrong address delays processing and can generate penalty notices.

Filling Out the Form

Line 1 reports total federal income tax withheld from nonpayroll payments, excluding backup withholding. Line 2 reports backup withholding. Line 3 adds them for total tax liability.⁶

Line 4 is total deposits made during the year, including any overpayment credit carried forward from the prior year. The difference between Line 3 and Line 4 shows whether you owe or overpaid. A balance due goes on Line 5; an overpayment goes on Line 6, where you can request a refund or apply it to the next year’s Form 945.

You can pay a balance due with the return only if your total tax for the year (Line 3) is under $2,500. Above that threshold, you should have been depositing throughout the year, and a remaining balance usually signals a deposit shortfall.⁶

If total tax is $2,500 or more, you also show how the liability broke down over the year. Monthly depositors complete Line 7 (each month’s liability). Semiweekly depositors skip Line 7 and attach Form 945-A, the Annual Record of Federal Tax Liability.¹ If total tax is under $2,500, skip both Line 7 and Form 945-A.

Deposit Rules

All federal tax deposits must be electronic. The IRS offers free options including the Electronic Federal Tax Payment System (EFTPS), your business tax account on IRS.gov, and Direct Pay for businesses.⁷ If total tax for the year is under $2,500, no deposits are required and you can pay the full amount with the return.

Everyone else is a monthly or semiweekly depositor based on a lookback period: the total Form 945 tax reported two years earlier. If that figure was $50,000 or less, you are a monthly depositor and must deposit each month’s accumulated withholding by the 15th of the following month.⁸

If the lookback figure exceeded $50,000, you follow the semiweekly schedule. Withholding on payments made Wednesday through Friday is due the following Wednesday. Withholding on payments made Saturday through Tuesday is due the following Friday.⁵

One rule overrides both schedules. If accumulated tax liability reaches $100,000 or more on any single day, deposit the entire amount by the close of the next business day. Triggering that rule also makes you a semiweekly depositor for the rest of the current calendar year and all of the next.⁸

Penalties for Late Filing, Payment, or Deposits

The IRS imposes separate penalties for filing late, paying late, and depositing late. They stack.

Filing late costs 5% of the unpaid tax per month or partial month, capped at 25%.⁹ If a failure-to-pay penalty applies for the same month, the filing penalty is reduced by the pay penalty amount to avoid double-counting the overlap.¹⁰

Unpaid tax after the deadline accrues a failure-to-pay penalty of 0.5% per month or partial month, also capped at 25%.¹⁰ Interest compounds on top. The IRS charged 7% annual interest on underpayments for the first quarter of 2026¹¹ and 6% for the second quarter of 2026.¹²

Deposit penalties scale with how late the deposit arrives:

1 to 5 days late: 2% of the unpaid deposit
6 to 15 days late: 5%
More than 15 days late: 10%
More than 10 days after the first IRS notice: 15%

The 10% rate also applies if you deposit to an unauthorized financial institution, pay the IRS directly instead of depositing, or fail to use electronic funds transfer when required.¹³ The penalty is calculated on the portion that was late or missing, under 26 U.S.C. 6656.¹⁴

Trust Fund Recovery Penalty

Withheld federal income tax is trust fund money; it belongs to the government, not the business. If a person responsible for depositing those funds willfully fails to do so, the IRS can assess the Trust Fund Recovery Penalty against that person individually. The penalty equals 100% of the unpaid trust fund tax plus interest. A responsible person can be a corporate officer, partner, sole proprietor, or any employee or trustee with authority over business funds. Willfulness here means voluntarily choosing to pay other business expenses instead of the withholding taxes.¹⁵

Correcting a Prior Return

Use Form 945-X to fix an error on a previously filed Form 945. It covers administrative errors, meaning the amount you reported did not match what was actually withheld from payees. A transposition entering $15,300 instead of $13,500 is a typical example.¹⁶

For underreported taxes, file Form 945-X within three years of the date the original return was filed. To avoid interest and penalties, file by January 31 of the year after you discover the error and pay the balance at the same time. For overreported taxes, file either an adjusted return or a claim for refund within three years of the original filing date or two years from the date you paid the tax, whichever is later.¹⁶

Final Returns and Recordkeeping

If the business closes, merges, or stops making nonpayroll payments, file a final Form 945. Check the box on Line A, enter the date of the last nonpayroll payment, and attach a statement listing the name and address of the person who will keep the payment records. If the business is sold or transferred, both the old and new owners each file a Form 945 for the year of the transfer, reporting only the tax each actually withheld.⁹

Keep all Form 945 records for at least four years after the filing date.¹⁷ That includes copies of filed returns, deposit receipts, and the Forms 1099 and W-2G that support the withholding totals. Keep W-9 forms collected from payees as well, since those document the Taxpayer Identification Numbers that determine whether backup withholding was required.¹⁸ The four-year clock does not start until the return is filed, so holding records a bit longer is reasonable insurance against late corrections or audit activity.

1
Internal Revenue Service. Instructions for Form 945 (2025)
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Internal Revenue Service. About Form 945, Annual Return of Withheld Federal Income Tax
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Internal Revenue Service. Backup Withholding
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Internal Revenue Service. Topic No. 307, Backup Withholding
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Internal Revenue Service. Employment Tax Due Dates
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Internal Revenue Service. Form 945 (2025), Annual Return of Withheld Federal Income Tax
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Internal Revenue Service. Depositing and Reporting Employment Taxes
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Internal Revenue Service. Topic No. 757, Forms 941 and 944 – Deposit Requirements
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Internal Revenue Service. Instructions for Form 945
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Internal Revenue Service. Failure to Pay Penalty
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Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
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Internal Revenue Service. Internal Revenue Bulletin 2026-8
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Internal Revenue Service. Failure to Deposit Penalty
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Office of the Law Revision Counsel. 26 USC 6656 – Failure to Make Deposit of Taxes
15
Internal Revenue Service. Trust Fund Recovery Penalty
16
Internal Revenue Service. Instructions for Form 945-X
17
Internal Revenue Service. Employment Tax Recordkeeping
18
Internal Revenue Service. Publication 583, Starting a Business and Keeping Records