Life gets more complicated if you have employees. On the federal level, you must file W-2s & W-3, form 940 and form 941. Every quarter you must file a Federal Employment Tax Return (form 941) with the IRS. The return is due on the last day of the month following the quarter (January 31, April 30, July 31 and October 31). You are allowed to file the return 10 days later if you deposited all payroll tax when due.
Form 941 is used to report total wages, federal income tax withholding, social security tax and medicare tax.
Federal Deposit Requirements
If the total tax due on form 941 is less than $2,500, you can just send a check along with the return. Otherwise, you must make timely deposits of payroll tax. The IRS will let you know your required deposit schedule. If you are a monthly depositor, you must deposit payroll tax by the 15th of the month following the month employees were paid. For example, if payday was on January 15th and 31st, all payroll tax and withholding related to those payrolls is due by February 15th. The relevant date is when the employee is paid not when the pay period ends.
Tip: For monthly depositors, paying employees on the 1st day of the month rather than the last day of the month will give you an extra month to make the payroll deposit.
When your monthly payroll deposit becomes large enough, the IRS will send you a notice that you need to deposit taxes as a semi-weekly depositor. Again, the relevant date is the date employees are paid.
If employees are paid on a Monday, Tuesday or Wednesday, the payroll tax for that payroll is due the following Friday. If employees are paid Thursday through Sunday, the payroll tax for that payroll is due on Monday.
Finally, if payroll tax ever reaches $50,000, you are required to deposit that tax the following day.
How Much is Form 941 Tax?
Employers must withhold 6.2 percent of each employee’s social security wage as social security tax. Social security wage cannot exceed the wage base which is adjusted for inflation. Employers must also withhold 1.45% of each employee’s medicare wage as medicare tax. The employer is then required to match these amounts as payroll tax. Finally, employers are required to withhold federal income tax from the employee’s gross income in accordance with the tables on Circular E and the employee’s W-4.
The W-4 indicates the employees filing status (example married) and the number of exemptions the employee claim. Circular E contains different tables for filing status and payroll periods.
How to Deposit Payroll Tax?
You can pay your payroll tax at your bank or you can enroll in EFTPS (Electronic Funds Tax Payment System). Make sure you begin the enrollment process in EFTPS a couple weeks at least before you need to make a tax deposit. The system requires that you use a PIN that is mailed to you.
Payroll – Federal Form 940
The IRS also requires employers to file and annual Federal Unemployment Tax Return (form 940). This form is due on January 31st each year. Form 940 report each employee’s wages up to the wage base which is $7,000 per employee. The federal unemployment tax is 6.2% of each employees wage up to the wage base ($434 for a single employee that earned at least $7,000). If you paid your state unemployment tax on time, you will likely earn a credit up to 5.4% of the employees form 940 wage. Thus, the form 940 tax would only be $56 for a single employee that earned at least $7,000. Form 940 tax can be paid with the return by January 31 so long as the total tax due is less than $500. Otherwise, you must deposit form 940 tax using the same method used to file form 941 tax (i.e. at your bank or through EFTPS).
Payroll – Federal Form W-2 and W-3
The IRS requires employers to provide each employee a form W-2 by January 31. The W-2 reports the employee’s wage for federal income tax, social security and medicare. It also reports the amount of withholding for each type of tax (income tax, social security, medicare). The employer must provide copy A of all W-2s and with a single W-3 to the IRS by February 28. The W-3 summarizes the information contained on all the W-2s.
State Payroll Forms – Unemployment
Employers must pay unemployment insurance tax on behalf of each employee. Typically, these returns are due on the last day of the month following the end of the quarter (January 31, April 30, July 31 and October 31 – just like form 941). Your tax rate is typically dependant on your industry and your experience rating. If you have many former employees collecting unemployment insurance, your rates will go up.