Any company with employees will have payroll tax obligations. Payroll personnel will typically be responsible for managing payroll tax liabilities and for filing the corresponding forms. It is important to follow your company’s payroll tax schedule and be timely with payroll tax payments to avoid penalties to your company.
Here, we will discuss key payroll tax obligations and deadlines to help you make sure nothing is forgotten.
Federal Income Taxes
Employers are required to withhold federal income tax from employees’ wages and deposit them to the IRS. The amount to withhold is determined by using the employee’s completed Form W-4 and withholding tables in Publication 15, (Circular E).
Social Security and Medicare Taxes (FICA)
Social Security and Medicare taxes must also be withheld from employees’ wages. The employer must then match the amounts withheld and deposit them. If you are self-employed, you are required to cover the employer and employee amounts, which can be calculated using Schedule SE. Your business will then be able to deduct the employee amount from its gross income.
The current employee tax rate for Social Security is 6.2% and the wage limit is $137,700 for 2020. The wage limit will typically increase each year in relation to inflation. The current employee tax rate for Medicare is 1.45% with no wage limit.
In addition to these taxes, there is an additional 0.9% Medicare tax that employers must withhold for any employee wage over the threshold ($250,000 for married filing joint, $125,000 for married filing separate, and $200,000 for other filers). This amount is withheld for any pay period that the threshold is exceeded until the end of the year. Employers are not responsible to match this amount.
Federal Unemployment Tax (FUTA)
FUTA tax must be reported and paid by all employers separately from federal income taxes and FICA taxes. This is an employer-only responsibility.
The FUTA tax rate in 2020 is 6% and is applied to the first $7,000 of wages paid to each employee.
State Payroll Taxes
State income tax withholding is required for the states the impose a tax. Some states will also require payroll taxes to contribute to state unemployment tax funds, disability funds, or state worker’s compensations funds.
Payroll Tax Form Due Dates
- Form W-2 and Form W-3: These forms are used to report wages, tips, and other employee compensation. Copies are sent to the SSA and the employee. Due January 31.
- Form 1099-MISC: This form is filed for each non-employee person paid $600 or more for services performed, such as independent contractors. Copies are sent to the IRS and the non-employee recipients.
- Form 941: This form reports income taxes and both the employer and employee portions of Social Security tax and Medicare tax withheld from an employee’s paycheck. Due April 30, July 31, October 31, and January 31.
- Form 940: This form is used to report annual FUTA tax. Due January 31.
Depositing Employment Taxes
Before the beginning of each year, you must determine which deposit schedule you are required to use; monthly or semi-weekly.
You are a semiweekly depositor if you:
- Reported more than $50,000 of employment taxes in the lookback period, or
- Accumulated a tax liability of $100,000 or more on any given day in the current or prior calendar year.
You are a monthly depositor if you:
- Reported less than $50,000 of employment taxes in the lookback period.
FUTA deposits are required to be made quarterly, regardless of your deposit schedule.