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Payroll Tax Filing Requirements
Payroll Taxes are a complicated subject, but I will do my
best to present this information in a concise way.
As a Texas employer, you have a number of responsibilities
to fulfill to your employees, the IRS, the Social Security Administration, the
Texas Workforce Commission, and even the Immigration and Naturalization Service.
You have requirements to meet with all four of these agencies, regardless
of how few hours your employee works, or whether your employees are members of
your family. This article is
intended to outline your basic responsibilities in clear simple steps.
You must use your Federal Employer Identification Number (FEIN) on all items you send to these government agencies. If you do not have a FEIN, you can apply for one on Form SS-4, and have your number assigned over the telephone by calling 512-460-7843. If you take over some one else’s business, do not use their FEIN, be sure to get your own.
If you need any of the forms described in this article, you
may call the IRS forms and publications at 1-800-829-3676, or print them out
from the IRS website, www.irs.ustreas.gov,
or call our office for assistance.
You have some basic record-keeping requirements.
Each employee must have three things:
a social security number, a current Withholding Allowance Certificate
called Form W-4 from the IRS, and Employment Eligibility Verification called
Form I-9 from the Immigration and Naturalization Service.
Keep these on file.
Whenever you pay your employees, the
employer is responsible for withholding a certain amount for federal income tax,
social security tax and Medicare tax. The
information your employee gives you on the W-4
affects how much you must
withhold from their pay for federal income tax.
Circular E from the IRS includes tax tables that calculate federal
withholding. The tax tables are
updated frequently. Using
QuickBooks for your paychecks simplifies these calculations tremendously.
By subscribing to QuickBooks Basic Payroll Service, your payroll tax
tables are continually updated and the proper withholding is automatically
calculated on your paychecks.
Social security tax is a straight 6.2%
of gross wages. Medicare tax is
1.45% of gross wages. As an
employer, you also pay four employer payroll taxes – the matching social
security tax of 6.2%, the matching Medicare tax of 1.45%, the federal
unemployment tax of 0.3% and the state unemployment tax set for your business by
the Texas Workforce Commission, usually 0.3%.
QuickBooks, when properly set up, will automatically calculate all these
taxes too.
These taxes, with the exception of
Medicare tax, are limited to a certain amount of wages.
Social security tax only applies to the first $80,400 of earnings for the
2001 tax year. Federal unemployment
tax only applies to the first $7,000 in wages.
And Texas unemployment only applies to the first $9,000 in wages.
These limits are called a “wage base”, and may change each year.
Medicare has no wage base limit. If you already use QuickBooks or
another computerized payroll program, it would be wise to review your payroll
set up at the beginning of each year to determine if you are using the proper
tax percentage and wage base for each payroll item.
So, to summarize the above, whenever you write a paycheck, you create seven payroll tax liabilities. Three employee taxes, and four employer taxes. These taxes are due quarterly for many of our clients. The IRS has made a welcome change in the tax due dates starting January 1, 2001. IF YOUR PAYROLL TAX LIABILITIES TOTAL LESS THAN $2,500 FOR THE QUARTER, YOU ARE NOT REQUIRED TO MAKE DEPOSITS WITH THE BANK. You can pay your tax with your quarterly return. QuickBooks will automatically calculate and print your quarterly payroll tax form.
If you have more than $2,500 in payroll
tax liability, but less than $50,000, you are a “monthly depositor”. That simply means your federal payroll taxes for the month
are due by the 15th of the following month. Deposit your taxes in any bank using a federal tax deposit
coupon called a Form
8109. This
coupon is a deposit slip for the federal government, and your account number is
your FEIN. These blue deposit slips
forms will be sent to you preprinted by the IRS, or may be ordered directly from
them.
The quarterly form is Form
941. It is used to pay federal withholding, employee and employer
social security tax, and employee and employer Medicare tax.
Form
941 is due April 30, July 31, October 31 and January 31.
So you have a month after each quarter has ended to determine and pay
these five tax liabilities. Your
state unemployment tax is due quarterly to the Texas Workforce Commission on the
same dates. If you are a monthly depositor, then the Form
941 will
account for your deposits, and there will usually be no additional taxes due.
The Texas Workforce Commission’s form is called the C-3 Employer’s Quarterly Report. The Texas Workforce Commission (TWC) form also requires a list of all employees by social security number and wages earned during that quarter. Your state unemployment tax rate is determined by the number of claims for unemployment benefits your past employees have made. The fewer the claims, the lower the rate. The lowest rate is 0.3%. This rate is made up of 0.2% unemployment tax and 0.1% Smart Jobs Assessment or job training tax. You must use the red forms the TWC sends to you. If you have any questions, you can call TWC at 491-4716.
Your federal unemployment tax (also
known as FUTA) is only due once a year on January 31, if your federal
unemployment tax liability is less than $100 for the year.
If you have less than 5 full-time employees, you will probably fall under
that limit. Wages paid to your spouse or parent are NOT subject to FUTA if it is
paid by you as an individual. Wages
paid to spouse or parents are subject to FUTA if they are paid by a corporation
or trust. QuickBooks
will automatically calculate and print your FUTA Form 940 as well.
At the end of the year, you must file your annual Wage and
Tax Statements called Form W-2. These
are special three-part forms, which are printed in red and can be ordered free
from the IRS or purchased at an office supply store. QuickBooks will automatically calculate and print your W-2’s onto these forms. They are
due to your employees by January 31.
Form W-3
is a “cover sheet” for your W-2’s
that gives
the total of all wages and taxes withheld for your company’s employees.
These special red W-2’s
and W-3 forms go to the Social Security
Administration (SSA). It is another
special red form that QuickBooks will print onto automatically.
Do not fold, staple, or paper clip these tax forms.
And they must be typed or printed from a computer, or they will not be
accepted. There are no additional
taxes to be paid with these forms. The
SSA must receive them by February 28.
If you don’t have QuickBooks, you might want to consider having our office prepare your payroll tax forms. Please feel free to contact us at any time if you have any questions. We are at your service.
By Gail HenkelGail Henkel