Payroll Taxes: Something You Need to Know

It is your responsibility as an employer is to collect, pay, and report payroll taxes as required by federal and state laws. If you are a corporate officer or other “responsible party,” you may be personally liable for payroll taxes not deposited or reported as required. Even if you use a payroll service or someone else to do your payroll work, including reports and deposits, this does not relieve you as an employer of the responsibility to pay all taxes correctly and file payroll tax return on a timely basis.

What are Payroll Taxes?

Payroll taxes are those taxes withheld from employee pay and paid by employers on behalf of employees and themselves. Payroll taxes consist of Social Security and Medicare taxes so called the FICA tax. Employers deduct the employee share from employee wages/salaries, and pay the other half.

Payroll taxes also included federal income tax and some states and localities have income taxes imposed by the federal government, and state and local governments. Income taxes only come out of employee wages. You do not contribute toward income taxes. You will withhold income taxes based on tax tables and how many allowances the employee claims on W-4. There is not a standard withholding rate.

What are the FICA Tax Rates?

Employee Employee 2017 Limit
Social security tax 6.2% 6.2% $127,200
Medicare 1.45% 1.45% No limit
Additional Medicare tax 0.9% - taxed on amount over $250,000 (for married filing jointly), $125,000 (for married filing separately), $200,000 (for single and all other taxpayers)
Self-employed have to pay self-employment tax instead of FICA tax. Self-employment tax (SECA) is basically the same as FICA tax. Both employer and employer share of Social Security (12.4%) applies to the first $127,200 in 2017. 2.9% Medicare tax applies to all earning without limit. Self-employment wages are also subject to additional Medicare tax if the wages are more than $250,000 if married filing jointly, $125,000 if married filing separate, or $200,000 for everyone else.Employee

When to make tax deposits

It is important for business employers to clearly understand and follow the tax deposit requirements to make your payroll tax deposits on time. You can deposit anytime up through the deposit due date, but if you deposit late, penalties will apply. There are a number of rules about when to deposit your payroll taxes.

Rule 1. Exception of deposit rule for Liability under $2,500

If you’re required to file Form 941 and your employment tax liability for the preceding quarter or current quarter is less than $2,500, you may pay the taxes for the current quarter with your timely filed return instead of making deposits, provided you don’t incur a $100,000 next-day deposit obligation during the current quarter. If you’re not sure your total tax liability for the current quarter will be less than $2,500, (and your liability for the preceding quarter wasn’t less than $2,500), make deposits using the monthly or semiweekly rules so you won’t be subject to failure-to-deposit penalties.

Rule 2. How to determine which deposit schedule?

The payroll deposit schedule depends mostly on the total amount of employment taxes reported by the employer in the twelve-month period ending the preceding June 30 (look-back period). For example, the look-back period for 2017 employment tax deposits would be the period from July,1 2015 to June 30 of 2016. Figure out the total taxes reported on Form 941 during the look-back period to determine your deposit schedule.

  •  If you are a new employer and you did not have employees during this “look back” period, or if your total payroll taxes for the “look back period” were $50,000 or less for the period, you are a monthly depositor.
  •  If your total taxes on your Form 941 for the four quarters of the look-back period was more than $50,000, You are a semiweekly schedule depositor.

When to make a monthly schedule Deposit

  • A monthly schedule depositor must deposit the employment tax liability for each month by the 15th of the following month. For example, the employment taxes for salaries and wages paid in March are due on or before April 15th.
  • If the due date falls on a banking holiday, deposit by the next business day.

When to make a semiweekly Schedule Deposit

  • Deposit taxes from payrolls paid on Saturday, Sunday, Monday or Tuesday, by the following Friday.
  • Deposit the taxes from payrolls paid on Wednesday, Thursday, or Friday by the following Wednesday.

If no wages are paid during any particular month, and there is no tax liability for that month, then no deposit would be required relative to that month. For example, if you didn’t pay any wages to employees for the entire month of March, then no deposit would be required on April 15.

Rule 3. $100,000 next day rule

  •  If you accumulate $100,000 payroll taxes on any day during a monthly or semi-weekly deposit period, you must deposit the funds by the next business day whether you are on a monthly or a semi-weekly schedule.. and
  •  For the rest of the year use the semiweekly schedule for all deposits under$100,000.

How to make payroll deposit?

You must use electronic fund transfer to make all federal tax deposits. Generally, electronic fund transfers are made using the Electronic Federal Tax Payment System, or EFTPS. EFTPS is a free service provided by the Department of Treasury. EFTPS is safe, secure, and available 24/7 over the internet or by telephone. For more information, go to the EFTPS Website at www.eftps.gov. Additional information about EFTPS is also available in IRS Publication 966.

How to report payroll taxes?

Most employers are required to file Form 941, Employer’s Quarterly Federal Tax Return, to report both the federal income taxes you withheld and the FICA taxes you withheld and paid during a calendar quarter. Even though you may pay throughout the quarter, you only file Form 941 once for the quarter. The deadline for filing Form 941 is the last day of the first month after a quarter ends. This makes the due dates April 30th, July 31st, October 31st, and January 31st. In addition, if you timely deposited all taxes when due, you have 10 additional calendar days from the due date to file. Also, if the due date for filing Form 941 falls on a Saturday, Sunday, or legal holiday, it’s due the next business day.