When total tax liability at the end of the third month is less than $1000, which form should be used for payment?

The correct choice for the scenario presented is the form used for reporting and paying employment taxes, specifically the 941 form. Employers use Form 941, the Employer's Quarterly Federal Tax Return, to report income taxes, Social Security tax, or Medicare tax withheld from employee's paychecks, as well as to pay the employer's portion of Social Security and Medicare taxes.

When the total tax liability is less than $1000 at the end of the third month, using Form 941 allows the employer to properly report and remit their employment taxes on a quarterly basis, aligning with the requirements set forth by the IRS for employers.

The other forms mentioned serve different purposes: the 1040 is used for individual income tax returns, the W-2 is utilized to report wages paid to employees and the taxes withheld from them, and the 1099 is typically used to report income from independent contractors and other non-employee compensation. Since none of these forms are designed to report and remit employment taxes in the context specified, Form 941 is the appropriate choice when tax liability is under $1000.