What You Need to Know About Filing Payroll Taxes

When a business hires full- or part-time members of staff, it’s necessary to have them set up within the payroll system. This doesn’t simply mean ensuring their wages are paid in full and on time, but that the business meets all requirements related to payroll taxes too. Filing payroll taxes can be frustrating. At times, matters related to payroll tax can be complicated. This article guides you through everything you need to know if you’re wondering how to file payroll taxes.

Payroll and FICA Taxes

It is an employer’s responsibility to report and pay taxes to the Internal Revenue Service (IRS). The employer needs to take the appropriate deductions from each paycheck, including federal and state income tax and FICA taxes. This is known as tax withholding.

Taxes are charged on wages, tips, and all other forms of compensation from employment. 

Federal and State Income Tax

Often referred to as simply income tax, federal and state income taxes are payable according to published tax rate schedules. These are adjusted yearly to reflect inflation. State tax rates vary according to location. 

FICA Taxes

FICA taxes are commonly known as payroll taxes. These are taxes made under the Federal Insurance Contributions Act, and they cover taxes for funding Social Security and Medicare programs.

Along with deducting taxes from an employee’s paycheck, employers must also match payments of FICA taxes. Employers must also typically pay Federal Unemployment Tax or FUTA. FUTA tax is not deducted from an individual’s salary.  

Employer Payroll Tax

Things to know

Employer payroll taxes refers to the taxes a company must make on behalf of an employee toward Social Security and Medicare. Essentially, an employer must match an employee’s FICA tax contributions.

In general, employers must report and pay employment taxes quarterly, via Form 941. However, in certain situations, small businesses can use IRS Form 944 to opt in to file payroll taxes yearly. The opt-in program only applies to businesses with a yearly liability of up to $1,000 for federal income taxes and FICA taxes combined.

Federal tax payments must generally be made online through the Electronic Federal Tax Payment System (EFTPS). This is a free service provided by the U.S. Department of the Treasury. Note: To register for EFTPS a company must have a federal Employer Identification Number, or EIN, which allows the IRS to identify a business. 

If a small business exception applies, businesses can alternatively remit taxes with the quarterly return, which uses Form 941. This exception only applies to businesses that have taxed a maximum of $2,500 for the current or previous quarter.

When completing taxes, it’s important for a business to understand exactly which team members it has tax responsibilities for. A business only needs to complete tax information and payments for employees. Businesses are not liable for taxes in relation to freelance contractors or external consultants. Such individuals are responsible for filing their own taxes and making their own payments to the IRS. However, it’s vital that businesses don’t try to evade tax responsibilities by incorrectly classifying staff members. There are harsh penalties for such practices.

Types of Businesses

For sole proprietors, the business isn’t taxed separately; business taxes must be included on a personal income tax return. When it comes to payroll taxes, sole proprietors must follow local and national tax laws. This means making tax deductions from employees’ wages, and reporting and remitting taxes.

Although partnerships also don’t pay tax at the company level, the owners are still required to adhere to tax rules for any employees.

Payroll taxes must also be filed for all employees of a Limited Liability Company (LLC), C Corporation, and S Corporation.

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Penalties

There are strict penalties for failing to file, failing to deposit, and failing to pay appropriate taxes. It is, therefore, imperative that any business returns tax information and payments on time. Penalties are given in the form of monetary fines. Ignoring fines leads to greater penalties, and the IRS will always find a way to collect any monies owed to it through civil recovery methods based on the Trust Fund Recovery Penalty Tax. 

Failure to file results in fines starting from 5% per month up to 25% each month.

Failure to deposit results in fines starting from 2% per month up to 25% each month. If business files are between 1 and 5 days late, they are subject to the lowest penalty of 2%. If filing is late between 6 and 15 days, the fine increases to 5%. More than 16 days late incur a penalty of 10%. If a business has received a notice from the IRS and still doesn’t pay, the fine increases to 15% after 10 days from the notice to pay.

A payroll services provider can help you avoid late penalties and remain tax compliant.

Paying Your Payroll Taxes

If your business has outstanding taxes that it's struggling to pay, there are several solutions.

You can agree on a payment plan with the IRS. Essentially this is an agreement to pay all owed taxes within a stipulated time frame. When a payment plan is in place, the IRS cannot seek to collect debts.

Offers in compromise (OIC) can allow you to make a partial payment in full satisfaction of the total amount owed. The IRS considers each request on a case-by-case basis.

Abatement of penalties is a form of penalty relief that may waive fines for failing to file, deposit or pay.

Under the Statute of Limitations on the Assessment of Tax, the IRS must assess taxes and begin any court proceedings within 3 years of a tax filing.

Forms to Be Aware of for Payroll Tax

There are several key forms related to payroll tax. These include:

• Form 940
• Form 941
• Form W-4
• Form W-2
• Form 1095-C
• Form SS-4
• Form 1099-MISC
• Form 1023
• Schedule B of Form 941

For easier payroll and to ensure your business meets all of its tax obligations, Bulldog Payroll can assist. Contact us for further information and to discuss your requirements.

Are you looking for more payroll processing information? Check out our Ultimate Guide to Payroll Processing.

Is payroll a thorn in your side? Let us handle all the stress related to payroll so you don't have to...