If a contractor's total federal tax liability for the quarter is less than $2,500, what can they do?

The appropriate action for a contractor whose total federal tax liability for the quarter is less than $2,500 is to send the tax liability with a timely filed Form 941. This form is essential for reporting employment taxes, including federal income tax withheld, Social Security taxes, and Medicare taxes. When the liability is below the $2,500 threshold, the IRS allows contractors to report their liability on Form 941 by simply including the amount owed when submitting the form.

This process ensures that contractors remain compliant with federal tax obligations and avoid potential penalties for late or missed payments. By submitting the tax payment along with the form, the contractor fulfills their requirement without needing further documentation or cumbersome separate filings, which may be the case in other tax situations.

In contrast, the other options may involve unnecessary complexities or lack alignment with IRS guidelines. A special report isn’t necessary in this scenario, and paying in cash might not be the most efficient or secure method of settling such obligations. Ignoring the payment entirely can lead to severe consequences, including accrued penalties and interest. Thus, timely filing Form 941 with the payment is a straightforward and compliant approach.