If you have employees, you must deposit all the federal income tax you withhold from your employees (based on their W-4 forms), including both the employer and employee portions of Social Security and Medicare taxes.
Based on your situation, you may have to make deposits on a monthly or a semiweekly schedule — and deciding which one is right for your business involves calculations: If you’re a Form 941 filer (quarterly), your deposit schedule for a calendar year is determined from the total taxes reported on your Form 941s during a set look-back period. If you reported $50,000 or less of taxes, you’re a monthly schedule depositor; if you reported more than $50,000, you’re a semiweekly schedule depositor. Companies that use annual Form 944 for Form 945 have similar look-back rules but on an annual basis.
You have a separate process for your annual federal unemployment tax, which requires Form 940. With a few exceptions, if you answer “yes” to either one of these questions, you must file Form 940:
- Did you pay wages of $1,500 or more?
- Did you have one or more employees for at least some part of a day in any 20 or more different weeks? Count all full-time, part-time and temporary employees (but not partners if your business is a partnership).
Most employees know that they have to prepare a Form W-2 for each employee, but there are also subtleties there. According to the IRS, employers who pay remuneration, including noncash payments of $600 or more for the year for services performed by an employee, must file a Form W-2 for each employee for whom:
- Income, Social Security or Medicare tax was withheld.
- Income tax would have been withheld if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4, Employee’s Withholding Certificate.
Less well known is the accompanying Form W-3, Transmittal of Wage and Tax Statements. Anyone required to file Form W-2 must file Form W-3 to transmit Copy A of Form W-2.
Finally, after you’re all set with your amounts, you cannot just write a check. You must use the electronic federal tax payment system (or EFTPS) to make all federal tax deposits.
A Few Words on Form W-4
Although Form W-4, the Employee’s Withholding Certificate, is the responsibility of your employees, it might be wise to inform your employees it was redesigned in 2020. In the past, the value of a withholding allowance was tied to the amount of the personal exemption. Due to changes in the law, taxpayers can no longer claim personal exemptions or dependency exemptions; therefore, the 2020 Form W-4 no longer asks an employee to report the number of withholding allowances that they are claiming. You do not have to mandate that employees who submitted Form W-4 in any year before 2020 submit a new form merely because of the redesign. However, some of them may find their withholdings are more accurate if they do so.
This is just a summary of the involved and always-changing process of payroll tax submissions. Systems and the specific amounts referenced can change, so be sure to keep in touch with professionals to make sure you’re following the correct and current rules and procedures.