The Ins and Outs of Depositing and Reporting Payroll Taxes
Employment taxes must be reported and deposited on a regular schedule set by the government. Although handling employment taxes may seem confusing at first, once you get your deposits and reports on the calendar and have gone through a few cycles, it gets easier.
The general advice that follows covers many businesses, but not all. Your business may be different, so consult with a professional who is well versed in taxes to confirm your business's deposit and reporting schedule.
Depositing Employment Taxes
You are required to deposit three types of taxes:
- Federal income tax withheld.
- Social Security (both employer and employee portion).
- Medicare (both employer and employee portion).
The IRS has a set schedule for deposits to be made. This schedule, based on how much tax you accrue and deposit, can be found in Publication 15 on the IRS website. Form 940, Employer's Annual Federal Unemployment Taxes (also known as FUTA), must be deposited by the end of the month following each quarter's end.
To pay your taxes, you must use the electronic funds transfer available on the IRS website. It's simple to use and free, and moves money directly from your company or business bank account to the IRS.
Reporting Employment Taxes
Employers must report wages, tips and any other compensation given to an employee during the tax year. This information is reported to the IRS on Forms 940 and 941, and perhaps Form 944. The forms are available on the IRS website, and can be filed electronically.
- Form 940 is the Employer's Annual FUTA report. Any business with employees must submit this form annually along with their taxes.
- Form 941 is the Employer's Quarterly Federal Tax Return. After each fiscal quarter ends, you must complete and submit Form 941 to report the wages paid to your employees as well as Social Security and Medicare taxes.
- Form 944 is an Annual Federal Tax Return. If you run a micro or very small business with only yourself and perhaps one employee, and the federal taxes withheld are less than $1,000 per year, you may qualify to use Form 944 and submit it annually instead of quarterly.
One additional form is very important: the W-2 form. You're probably familiar with these because most likely you've received them from companies you've worked for in the past. As an employer (even if you employ only yourself and family members), you're responsible for generating W-2 forms for each employee, even if they only worked for you briefly. After you generate the W-2 forms, they must be mailed to each employee's home address. One additional form, the W-3, is submitted to the IRS to record the W-2 forms. All of these forms are available on the IRS website. You can complete them online.
It's vital to submit all forms and payments to the IRS by their due dates. For more information about these and other forms, see the IRS's website, Depositing and Reporting Employment Taxes.
Depending on the size of your business, a payroll service can be very helpful in managing your obligations in payroll. Contact us today and we can help you identify a service that will suit your business.