The Internal Revenue Service (IRS) expects all employers to withhold certain taxes from employee paychecks and to remit payroll tax deposits on time. However, there’s more to running payroll than determining how much to pay each person and handing out checks. After calculating taxes and submitting payroll tax deposits to the proper authority, you still need to prepare a report on the taxes you withheld and the deposits you made.

Understanding Payroll Taxes

In addition to federal taxes, you must also withhold and remit FICA taxes that include Medicare and social security. As the employer, you must match the percentage you withheld from each employee’s paycheck to cover FICA taxes. The federal government also requires you to pay unemployment taxes based on the total gross amount of your payroll.

Payroll Tax Deposits and the Look-Back Period

The IRS establishes a schedule for payroll tax deposits for each employer based on its total gross liability for Medicare and social security. The period extends for 12 months and ends each year on June 30. The IRS refers to this schedule as a look-back period. For example, the look-back period to make your 2019 payroll tax deposits would have ended on June 30, 2018.

Determining How Much You Owe in Payroll Taxes and When to Pay It

When you open a business account with the IRS, it will supply you with a form called the Quarterly Wage and Tax Return or Form 941 each quarter. You can figure the payroll tax you owe by looking at the 10th line of the form and adding the amounts together for each of the four quarters.

If you have recently launched your company and didn’t have employees in the past, the IRS will require you to make monthly payroll tax deposits. Here are some other considerations to help you determine how often you should make deposits:

  • You may use Form 941 once per quarter if your payroll taxes for the period are less than $2,500.
  • You should make monthly payroll tax deposits if you owe $50,000 or less during the look-back period.
  • You should make semi-weekly payroll tax deposits if you owe $50,000 or more during the look-back period.

If you’re on a monthly deposit schedule, you must remit payroll taxes for the previous month by the 15th of the next month. Since many exceptions exist for semi-weekly and other types of deposits, it’s best to check with your accountant to ensure you understand your responsibilities.

The IRS Requires Electronic Payments

The IRS has established a system for the payment of payroll taxes called the Electronic Federal Tax Payment System (EFTPS), requiring all employers to use. You will need an employer identification number (EIN) to enroll in this system for the first time.

Consider Outsourcing Your Tax Payments

Keeping track of federal and state regulations regarding payroll taxes and remitting payments on time can be a major undertaking when you’re already running a business. Outsourcing the work to Chicagoland CPAs ensures timely and accurate payment of your payroll tax responsibilities while freeing up your time to pursue other business activities. We invite you to contact us today to learn more.