Schedule R (Form 941) Allocation Schedule for Aggregate Form 941 Filers: A Complete Guide for 2014

Filing payroll taxes can feel overwhelming, especially if you're a payroll agent handling multiple clients. Schedule R (Form 941) is your essential tool for breaking down aggregate payroll tax reports into individual client allocations. This guide walks you through everything you need to know about Schedule R for 2014 in plain English.

What the Form Is For

Schedule R (Form 941) serves one critical purpose: it allocates—or divides up—the combined payroll tax information you report on an aggregate Form 941 among each of your individual clients.

Think of it this way: if you're a payroll service company or approved agent handling payroll for five different small businesses, you file one aggregate Form 941 showing the total wages and taxes for all five clients combined. Schedule R is the required attachment that shows exactly how much of those totals belong to Client A, Client B, Client C, and so on.

Who Must File Schedule R

Only IRS-approved agents who file aggregate Forms 941 under section 3504 of the tax code. To become an approved agent, you must have previously filed Form 2678 (Employer/Payer Appointment of Agent) and received IRS approval before filing Schedule R.

If you're a regular employer filing for your own employees only, you don't need Schedule R—just file Form 941.

Information Captured on Schedule R

The schedule captures seven key pieces of information for each client:

Client's Employer Identification Number (EIN)
Wages, tips, and other compensation
Federal income tax withheld
Social security and Medicare taxes
Tax due on unreported tips (Section 3121(q) notices)
Total taxes after adjustments
Total deposits and payments made

Important distinction: You must also report the same information for your own employees (if any) separately on line 18 of Schedule R, not just your clients' information.

When You’d Use It (Including Late/Amended Filings)

Regular Filing

You must file Schedule R every quarter along with your aggregate Form 941, matching the same quarterly deadlines:

QuarterMonths CoveredForm 941 Due DateSchedule R Due Date1st QuarterJan–Feb–MarApril 30April 302nd QuarterApr–May–JunJuly 31July 313rd QuarterJul–Aug–SepOctober 31October 314th QuarterOct–Nov–DecJanuary 31January 31

If any due date falls on a weekend or legal holiday, you may file on the next business day.

Late Filings

If you discover an error on a previously filed Schedule R or need to file one you missed, you cannot simply submit a late Schedule R by itself. Instead, you must correct the underlying Form 941 first using Form 941-X (Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund), filed separately from your current quarter’s return.

Amended Filings

When correcting errors on a previously filed aggregate Form 941 using Form 941-X, you must attach a new Schedule R showing corrections only for the clients affected by the error—not all clients.

“Schedule R (Form 941) is completed only for those clients who have corrections reported on Form 941-X.” — 2014 Form 941-X Instructions

File each Form 941-X separately; don’t attach it to your current quarter’s Form 941.

Special filing requirement: Agents filing for 1,000 or more clients must file paper returns unless they e-file through an IRS-approved transmitter using the Modernized e-File system.

Key Rules for 2014

Tax Rates for 2014

Social security tax rate: 6.2% each for employee and employer (12.4% total)
Social security wage base limit: $117,000 per employee
Medicare tax rate: 1.45% each for employee and employer (2.9% total)
Additional Medicare Tax withholding: 0.9% on wages exceeding $200,000 (employee-only tax)

Critical Matching Requirement

The totals on Schedule R line 19 (which combines lines 1–18, including both client and agent employee data) must exactly match the corresponding amounts on your aggregate Form 941. The IRS will reject mismatched returns.

Form 2678 Approval Required

You must have prior IRS approval as an agent under section 3504 before filing Schedule R. The approval comes from submitting Form 2678. Filing without approval can cause delays or penalties.

Number Format Rules

Do not use commas in amounts over $999.99 (enter “10000.00” not “10,000.00”).

Calendar Year and Quarter Consistency

The year and quarter you check at the top of Schedule R must match your Form 941.

Continuation Sheets

If you serve more than 15 clients, use continuation sheets (page 2) and add the subtotals on line 17 of the main form.

Step-by-Step Instructions (High Level)

Step 1: Gather Your Information

Collect each client's EIN and their totals for wages, withholdings, deposits, and payments.

Step 2: Enter Your Business Information

Use your EIN and name exactly as on Form 941.

Step 3: Mark the Calendar Year and Quarter

Ensure this matches the attached Form 941.

Step 4: Allocate Client Information (Lines 1–15)

Fill one line per client:

(a) Client’s EIN
(b) Wages, tips, other compensation
(c) Federal income tax withheld
(d) Social Security and Medicare taxes
(e) Section 3121(q) tax on unreported tips
(f) Total taxes after adjustments
(g) Total deposits and payments

Step 5: Calculate Client Subtotals (Line 16)

Step 6: Add Continuation Sheet Totals (Line 17)

Step 7: Report Your Own Employees (Line 18)

Step 8: Calculate Grand Totals (Line 19)

Totals must match your Form 941 line items.

Step 9: Double-Check for Errors

Ensure all totals reconcile before submitting.

Step 10: Attach and File

Staple Schedule R and file with Form 941 by the deadline.

Common Mistakes and How to Avoid Them

Mistake #1: Totals Don’t Match Form 941

How to avoid: Verify each column total on line 19 against Form 941 before filing.

Mistake #2: Forgetting to Report Agent’s Own Employees

How to avoid: Confirm line 18 includes your company’s payroll data.

Mistake #3: Using Commas in Large Numbers

How to avoid: Enter numbers as “10000.00” not “10,000.00.”

Mistake #4: Mismatched Quarter or Year

How to avoid: Confirm both forms show the same quarter and year.

Mistake #5: Filing Without Form 2678 Approval

How to avoid: File Form 2678 early and wait for IRS approval.

Mistake #6: Including All Clients on an Amended Schedule R

How to avoid: Include only clients affected by corrections on Form 941-X.

Mistake #7: Wrong EIN at the Top

How to avoid: Use your (agent’s) EIN at the top; client EINs go in column (a).

What Happens After You File

Immediate Processing (60–90 Days)

The IRS matches Schedule R totals with Form 941 and verifies deposit consistency. Mismatched forms trigger IRS notices within 60–90 days.

Client Account Allocation

The IRS posts Schedule R data to each client’s employer account to ensure accurate wage and tax crediting.

Year-End Reconciliation

IRS compares all four quarterly Forms 941 against W-2 filings for consistency.

Penalty Assessment

Possible penalties include:

Failure to file: 5% per month (up to 25%)
Failure to deposit: 2–15% based on lateness
Accuracy-related: 20% for negligence

You can avoid most penalties by timely filing Form 941-X when correcting errors.

Refunds and Credits

Refunds generally process within 6–12 weeks; credits apply to your next quarter’s return.

Long-Term Records

Keep all Schedule R records for at least 4 years. The IRS retains data for at least 3 years.

FAQs

Q1: I have 18 clients. Do I need three pages of Schedule R?

Yes. Use the main page for 15 clients and continuation sheets for the rest. Combine totals on line 17.

Q2: Can I file Schedule R electronically, or must it be paper?

Either is allowed for 2014. Agents with 1,000+ clients must paper file unless using an IRS-approved e-file transmitter.

Q3: One client went out of business mid-quarter. How do I report?

Report wages normally for that quarter. The client should file their own final Form 941 separately.

Q4: I underreported one client’s wages last quarter. What should I do?

File Form 941-X for that quarter with a new Schedule R showing only the affected client’s corrections.

Q5: Do I send Forms W-2 for clients’ employees?

Usually, clients handle their own W-2s unless your agent agreement specifies otherwise.

Q6: What’s the difference between lines 16, 17, 18, and 19?

Line 16: Totals for first 15 clients
Line 17: Totals from continuation sheets
Line 18: Agent’s own employees
Line 19: Combined grand totals (must match Form 941)

Q7: Do I file Schedule R with Form 940 too?

Not typically. Form 940 uses a separate Schedule R for unemployment taxes, introduced later.

Additional Resources

For more information about Schedule R and Form 941 for 2014, visit:

Need Help?
Call the IRS Business & Specialty Tax Line: 1-800-829-4933 (Mon–Fri, 7:00 AM–7:00 PM local time).