A Guide to Payroll Tax Liability
As an employer you create a Payroll Tax Liability every time you pay employees.
You generally must withhold federal income tax from your employees’ wages every time you pay employees. You generally must withhold federal income tax from your employees’ wages.
Payroll Tax Liability: Income Tax plus Social Security and Medicare Taxes
As an employer you create a Payroll Tax Liability every time you pay employees. You generally must withhold federal income tax from your employees’ wages. You withhold part of Social Security and Medicare taxes from your employees’ wages and you pay a matching amount yourself. To figure how much to withhold from each wage payment, use the employee’s Form W-4 and the methods described in Publication 15, Employer’s Tax Guide and Publication 15-A, Employer’s
Federal Unemployment (FUTA) Tax
You report and pay FUTA tax separately from Federal Income tax, and Social Security and Medicare taxes. You pay FUTA tax only from your own funds. Employees do not pay this tax or have it withheld from their pay. Most employers forget this tax and create a Payroll Tax Liability.
Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners.
Depositing Employment Taxes
In general, you must deposit income tax withheld, both the employer and employee Social Security and Medicare taxes (minus any advance EIC payments), and FUTA tax by depositing electronically, mailing or delivering a check, money order, or cash to a financial institution that is an authorized depositary for federal taxes using Form 8109-B. You can also make your deposits using the Electronic Federal Tax Payment System (EFTPS). Some taxpayers are required to deposit using the EFTPS.
Reporting Employment Taxes
In general, employers are responsible to report federal Income Taxes, Social Security, and Medicare taxes on Form 941, Employer’s Quarterly Federal Tax Return or Form 943, Employer’s Annual Federal Tax Return for Agriculture Employees (For use by farm employers).
Note: Employers who have an employment Payroll Tax Liability of $1,000 or less for the year may file Form 944, Employer’s Annual Federal Tax Return and Instructions, instead of Form 941, Employer’s Quarterly Federal Tax Return. Eligible taxpayers will be notified by mail.
Report FUTA taxes on Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return.
e-file for Business and Self-Employed Taxpayers
Whether you’re a business, big or small, or are self-employed you’ll find an e-file for business filing option that meets your needs. Use IRS e-file for Employment Tax Returns, Information Returns, Partnerships, Corporations, Estates & Trusts, plus Exempt Organizations.
Preparing and Filing Form W-2
At the end of the year, the employer must complete Form W-2, Wage and Tax Statement to report wages, tips and other compensation paid to an employee. A copy of this form must be given to the employee by January 31st after the end of the year. You must also send a copy of the W-2 to the Social Security Administration (SSA). Employers can prepare and file up to 20 W-2s at a time at the Social Security Administration’s Web site. Using SSA’s online W-2 filing, employers can also print out all the necessary copies of the W-2 for their employees, state taxing agencies, etc.
Correcting/Adjusting Employment Taxes
If correcting employment tax errors on previously filed employment tax returns is required, refer to Correcting Employment Taxes.
Outsourcing Payroll Duties
If you outsource your payroll, refer to Outsourcing Payroll and Third Party Payers.
Independent Contractor (Self-Employed) or Employee?
Which workers are considered employees? Before you can know how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. Refer to Independent Contractor (Self-Employed) or Employee? for more information.
Certain Taxpayers May Now File Their Employment Taxes Annually
To reduce burden for certain small business taxpayers, employers who have an Employment Tax liability of $1,000 or less for the year will now file Form 944, Employer’s Annual Federal Tax Return, instead of Form 941, Employer’s Quarterly Federal Tax Return. Eligible taxpayers will be notified by mail. Refer to Certain Taxpayers May Now File Their Employment Taxes Annually for more information.
Combined Annual Wage Reporting (CAWR)
Combined Annual Wage Reporting (CAWR) is a Document Matching Program that compares the Employee Wage Information reported by the employer to the Internal Revenue Service (IRS) and the Social Security Administration (SSA). If the amounts reported to the IRS do not match those from SSA, you may receive a notice asking for the reason for the discrepancy. If you do not respond timely, IRS may compute the additional taxes and/or penalties due and send you a bill. If you receive a notice CP253 or Letter 99C regarding missing Form(s) W-2, refer to Combined Annual Wage Reporting Missing Form W-2 Inquiries. If you receive a notice CP251 or Letter 99C regarding underreported employment taxes refer to Combined Annual Wage Reporting Employment Tax Problem Inquiries