So you have a business?
Paying yourself and employees? Or have plans on doing so?
Well there are taxes that need to be filed and paid, and this post is going to break down all of it.
For the purposes of filing and paying employer payroll taxes, we’d highly recommend using a payroll software like QuickBooks or Gusto.
These programs completely automate the process of calculating and filing your payroll taxes.
But even with this software, we believe that it is important for you, as the business owner, to understand these taxes and the requirements.
Most business owners have worked for someone else before they went into entrepreneurship. And have noticed that taxes were withheld from their paychecks.
A pretty big chunk too.
Well, just how as an employee you had to pay taxes on every paycheck, your employer also had to pay similar taxes.
Now that you’re the employer, you have the responsibility of not only withholding taxes from your employees’ wages but also paying the employer portion.
All set? Let’s get started.
We want to mention that in this post, we’re going to specifically talk about paying employees, not contractors.
We actually have a post describing the difference between the two and we highly recommend you check that out – 1099 vs W2: How Should You Pay Your People.
Payroll Tax Filings: Forms That You Need
So before you actually start paying your employees, there are a few forms you need to have them fill out. Those are forms I9 and W-4.
- Form I9
You use Form I-9 to verify the identity and employment authorization of individuals. This form ensures that who you’re hiring is eligible to work in the US.
- Form W-4
Employees complete Form W-4 so that you (as the employer) can withhold the correct federal income tax from employee pay.
If too little tax is withheld, the employee will owe taxes when they file their tax return.
If too much tax is withheld, the employee will be due a refund when they file their tax return.
But YOUR job is to simply apply the withholdings the employee authorized by using the W-4 that they filled out before they started working for you.
There should also be a state version of Form W-4 which the employee should complete as well.
While you’re having your new employee fill out these forms, also have them provide their ACH direct deposit information so you can direct deposit their paychecks.
Once you have all of these completed forms, you can start paying your employees.
Payroll Tax Filings: Things to Keep in Mind
Each employee will need certain taxes withheld from their checks, including:
- Federal taxes, this is based on how they completed that W-4
- 7.65% of their wages are paid to social security and Medicare (or FICA taxes)
As the employer, you will also need to pay some taxes, including:
- Matching what your employee paid in FICA. So 7.65% of their wages have to be paid by you in FICA taxes.
- Federal unemployment. This is about 6% of the first $7,000 paid to an employee.
- State unemployment. It depends on the state but is generally between .5%-6.5%.
Every quarter, an employer has to file quarterly employer tax forms to remit taxes to the appropriate government agencies. This is the sole responsibility of the employer.
It is important to understand that when you withhold taxes from your employee’s pay that this money is NOT yours. It is in fact, your employees’.
You are simply withholding it on their behalf to ultimately file and submit those taxes.
To do that, you need to fill out quarterly form 941. There is a state version of form 941 that should also be filed quarterly.
Form 941 is due exactly 1 month after the end of the quarter. So April 30th for the 1st quarter, July 31st for the 2nd quarter, and so on.
At the year-end, you need to provide each employee with a Form W-2.
Form W-2 shows the total amount you paid to each employee, as well as the taxes that were withheld and paid on their behalf.
They’ll need this form in order to complete their annual tax returns. And this form should be provided by January 31st.
You’ll also need to file the annual form 944 which is used to reconcile your quarterly form 941. This form 944 is due January 31st.
So there you have it! A complete guide on payroll tax filings that every employer like you should know.
As accountants and business owners ourselves, we know how complicated taxes can get. So, if you’re considering asking for some help concerning your business taxes, then look no further.
Our awesome team is ready to help, anytime! Contact us today to get started.