# Form 941, Line 7: Current quarter's adjustment for fractions of cents

**Form 941 got you confused?**I had the same problem. The instructions weren't clear, there were no good articles on the web about it, and even a call to the IRS didn't help. But I finally figured it out, and since nobody else has written about it, I I'm doing so now. That's my specialty: covering things that others haven't, or covered poorly. Anyway, here's the scoop.

For simplicity, I assume Line 11 doesn't apply to you (since it doesn't apply to most taxpayers).

## Summary

**Lines 5a-5c are NOT the amount of tax you owe for those items.**They're just*estimates*.**The true amount of tax you're liable for is on Line 12,**which you enter from your books.**If Line 6 doesn't equal Line 12,**enter whatever you need to on Line 7 to*make*Line 6 equal Line 12.**If your books are in order, Line 16 on p. 2 will equal Line 12.**If it doesn't, it's not a rounding problem, your books are screwed up.

## Step by Step

**Fill out lines 1-6 then stop.**Remember, this is just an estimate, not our true tax liability.**Now we'll go to our books to find our true tax liability.****If you're tracking payroll in a spreadsheet (rather than with accounting software),**when you figure the SS + Medicare tax amounts, do NOT format the cells to simply*show*two decimal places! Instead, forcibly*round*each figure to two decimal places. For example, in Excel, =round(A15*7.65%, 2) . In OpenOffice, use a semicolon instead of a comma. If you're satisfied with that instruction then keep reading, if you want to know*why*you need to do this then scroll down for the explanation.**From each individual paycheck, sum all the figures for Federal Income Tax Withholding.****From each individual paycheck, sum all the figures for Social Security & Medicare withholding,**then multiply that figure by 2. (Multiply by two because the employer must match the amount the employee pays.)**Add the totals from steps 4 and 5 above.**This is your true tax liability, and what you enter on lines 10 and 12.**Does Line 6 match Line 10?**If not, then enter whatever you need to on Line 7 to*make*it equal Line 10. (It should be a trivial amount. If it's a lot, and you have only a few employees, your books are probably wrong.)**On Line 16, get these monthly figures by summing the amounts from the individual paychecks.**If you do that, then Line 16 will equal Line 12 nicely. Do*not*calculate the monthly figures by taking the total wages and multiplying by the tax rates; if you do that, then your Line 16 total will likely differ from Line 12 by a few cents.Ta-da!

## Appendix: Why you round the amounts in a spreadsheet rather than displaying as two decimal places

**When you tell a spreadsheet to**Later, when you add up all those values, you could wind up with a rounding error.

*show*you a figure to two decimal places, then the number it shows you might not be the actual value.**For example, if you enter =99*0.062 (the social security tax on $99) and ask to show as two decimals, the true value will be $6.138, but your spreadsheet shows you $6.14.**If you have nine employees, and you summed the tax for all those employees, your spreadsheet will do 9 x $6.138 = $55.242, which it'll show as $55.24. However, the actual tax you're paying on each employee is $6.14, and 9 x 6.14 = $55.26, which is off by two cents.

**So, to get your spreadsheet to handle this correctly, we tell the spreadsheet to forcibly round the amounts to two decimal places.**Rather than enter =99*0.062, instead we enter =round(99*0.062, 2). Whether you round or not, what you'll

*see*in the cell is $6.14. The difference is that without rounding, the actual value, which you can't see, is really $6.138, and with rounding, the actual value is exactly $6.14. When your values are exact, the total of all those values will be correct.