Depositing and Reporting Employment Taxes
As an employer, you are required to uphold the responsibility of payroll taxes. As such, you must also ensure that you understand what the rules are, especially due to how complex they are.
First and foremost, start by ensuring you are aware of these three types of taxes, which you will need to send to the government.
- Federal income taxes: Employees are required to pay federal income tax, though it is not a tax that they pay directly. Instead, employers withhold federal income taxes from their employees’ paychecks.
- FICA taxes: These refer to either Social Security taxes or Medicare taxes that you withheld from all of your employees during the year, plus the amount of money that you are required to match as the employer.
- Federal unemployment taxes: The amount you owe in terms of federal unemployment taxes is calculated by looking at your total gross payroll. Federal unemployment taxes are based on the first $7,000 of wages paid to each employee each year, even though employees don’t pay federal unemployment taxes. Only employers pay these taxes.
Every quarter, employers must report all wages, tips, and any other form of compensation they paid to their employees. Employers are also required to report the federal income tax that they withheld as well as Social Security and Medicare taxes. As an employer, you must deposit the federal income tax you withheld, in addition to both the employer’s and the employee’s Social Security taxes and Medicare taxes.
Know the details
There are three types of payment schedules when it comes to paying employment taxes, and those include either semiweekly, monthly, or next-day deposits. The schedule you must follow when depositing employment-based taxes will depend on the dollar amount of your tax bill, not the frequency at which you, as an employer, pay your employees, so be sure to look at Form 15 and Form 51 to determine the schedule applicable to your situation.
If you are required to deposit taxes in accordance with the monthly schedule, your payments are due on the 15th of the month following the month in which you paid your employees. As an example, if you paid your employees in November, your tax deposits must be submitted by December 15 at the very latest.
For those of you depositing money on a semiweekly basis, here is when you can expect to deposit money based on which day of the week you paid your employees:
- For payroll that was paid on either Saturday, Sunday, Monday, or Tuesday, submit the tax deposits by the following Friday.
- For payroll that was paid on either Wednesday, Thursday, or Friday, deposit the taxes by the following Wednesday.
If you owe $100,000 or more in employment taxes, you must adhere to the next-day deposit schedule. You are required to deposit employment taxes the day immediately after the day you paid your employees. You must also uphold the next-day deposit schedule for the rest of the year, as well as the year following.
With the next-day payment schedule, there are no penalties imposed if errors in deposits are made as long as those deposit errors do not exceed either $100 or 2 percent of the employment tax value you are depositing. However, to avoid penalties altogether, employers must ensure that they account for errors and pay it as soon as possible.
Special rules for FUTA
Federal Unemployment Tax Act (FUTA) taxes are reported on Form 940. Deposits for FUTA taxes are required if the applicable tax due exceeds $500 within one quarter. You will need to deposit the FUTA tax value by the end of the month that follows the end of each quarter. When depositing federal taxes, you will pay via electronic funds transfers via the Electronic Federal Tax Payment System (EFTPS). These are submitted either on the EFTPS website or by telephone. If you do not submit your deposit in a timely manner, then you run the risk of accruing a 15 percent penalty.
If you are looking for specific forms, take a look at Publication 15 when you are in search of Form 941, Form 944, or Form 945. Alternatively, if you need Form 943, review Publication 51 to learn more about the specific IRS details pertaining to payroll deposits.
Form W-2, or the Wage and Tax Statement form, is the way by which employers report the wages, tips, and various other types of compensation earned by their employees. The W-2 form must be completed by the end of each tax year. When filing W-2 forms, send them along with Form W-3, or the Transmittal of Wage and Tax Statements form, to the Social Security Administration. You will also file copies of the W-2 forms with each employee’s state or local tax department.
It makes sense that many businesses turn to a payroll service or payroll software when they need help with understanding the details of tax employment forms and making payroll tax deposits. Make sure the software you are utilizing has the ability to remind you when your payments are due.
A payroll service or software system will not excuse you from staying on top of deadlines or upholding your responsibilities as an employer, but it does make the employment tax filing process a lot more streamlined. Contact R&A if you would like more information about a payroll system for your business–we have experts who can help.
About this Author
Allison and her team provide a comprehensive suite of outsourced accounting and financial services to clients. Prior to joining R&A in June 2018, Allison worked in the nonprofit sector for thirteen years. Her experience also includes more than ten years of teaching at the university level. Allison holds a bachelor’s degree from the University of Chicago and master’s degrees in social work from Eastern Washington University, business administration from Gonzaga University, and professional accounting from Colorado State University. Allison is an avid basketball and baseball fan who also enjoys travel, home improvement, and spending time with her family.