Help: Employee Payroll Taxes

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Paying Payroll Taxes

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How do I avoid a payroll penalty?

The IRS and the States assess penalties when the payroll tax deposit amount is short or late.

The payroll tax deposit due dates are different for different companies. For a billion-dollar company, the payroll taxes could be hundreds of millions each payday while the amount is very small for a one employee company. The IRS assigns each company a payroll tax deposit schedule (monthly, semi-weekly, quarterly or next banking day) based on the amount of employee payroll taxes. A new company with no prior payroll history is required to deposit payroll taxes monthly. After a period of time (could be 2 years), the IRS/State will adjust the deposit requirement based on the amount of business payroll taxes. For example, a company pays more than $50,000 payroll taxes in the look-back period, July of the year before to June of the prior year, will become a semi-weekly depositor for the current year.

 Tip 1: Know the payroll tax deposit schedule of your company at the beginning of the year. If you do not know, contact the IRS and the State revenue department to verify. This is the most common cause of payroll penalty for businesses, especially growing small businesses.

Employer payroll taxes typically include Federal income tax, social security, Medicare, FUTA, State income tax, unemployment insurance and possibly other local taxes.

Income taxes, both Federal and State, are estimates. The withholding amount from each paycheck is computed based on marital status, # of exemptions and pay cycle. The exact amounts are reconciled when the employee files Federal 1040 and State tax returns. Unless the withholding is grossly under the liability (when filing 1040s), no penalty is accessed. On the other hand, if the withholding exceeds the liability, the IRS and the State will refund but will not add interests.

Social security, Medicare, FUTA taxes are generally the same for all employees. A good payroll software does not make mistakes if used correctly.

Unemployment insurance (UI) requirements are different for different States and the rate could be different for different companies. For example, a new California company starts with a UI rate of 3.4%. Overtime, depending on the claim-rate of the company employees, the rate could be adjusted up or down annually. UI is the responsibility of the company for California while other States may charge both the employees and the companies.

 Tip 2: Know the UI rate of your company. If you do not know, contact the State revenue department to verify annually.

In addition to these taxes, California charges ETT (Employee Training Tax) and other States or local governments may charge additional employer payroll taxes at varying rates.

 Tip 3: Select the correct payroll tax deposit schedule and enter the correct UI rate and local taxes in your company information, our software will compute the correct amounts and identify deposit due dates easily.

If you pay the taxes in full before the due dates, typically you will not be penalized, even if your reports, 941, 940 forms, e.g. are late.

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What is my payroll tax deposit schedule?

The best way to confirm the required payroll tax deposit schedule is to contact the IRS and/or the State revenue department. You can also follow the general guidelines below to determine the required payroll tax deposit schedule.

  • There are only two payroll tax deposit schedules, Monthly or Semi-weekly, and two exceptions (tax amount < $2,500 for the quarter or >$100,000 on any one payday).
  • New company (no payroll history) starts with a Monthly deposit schedule. Deposit schedule is then determined before the beginning of the new calendar year based on tax amount from the look-back period.
  • The payroll tax deposit schedule applies to income, Social Security and Medicare taxes only. FUTA (unemployment insurance) tax is paid either quarterly or annually If your FUTA tax will be $500 or less for the entire year. States typically follows the IRS schedule, though you should check to confirm.

Look-back period is the 4 quarters consist of the 3rd, 4th quarter of last year and the 1st and 2nd quarter of current year, used to determine the deposit schedule for the next calendar year. The example below shows that the deposit schedule for year 2013 is “Monthly” and it is “Semi-weekly” for year 2014.

2013 Look-back Period 2014 Look-back Period
3rd Quarter 2011 11,000 3rd Quarter 2012 12,000
4th Quarter 2011 11,000 4th Quarter 2012 12,000
1st Quarter 2012 11,000 1st Quarter 2013 12,000
2nd Quarter 2012 11,000 2nd Quarter 2013 15,000
  $44,000   $51,000

If your company has been in business for a period of time, the IRS determines the deposit schedule based on the amount of taxes from your prior payroll history. If the total business payroll tax for the look-back period is more than $50,000, your company needs to follow the semi-weekly payroll tax deposit schedule. If the amount is less than $50,000, your company can deposit taxes once a month.

If the tax amount for the prior or current quarter (expected) is less than $2,500 total, tax can be deposited when form 941 is filed (quarterly). If the total tax is more than $100,000 on any single payday, the tax needs to be deposited by the next banking day.

Depending on your payroll tax deposit schedule, the following days are important.

  • The 15th of each month for Monthly depositor – Payroll taxes for all paychecks issued in a prior month are due to the IRS by the 15th of the current month. For example, 8/15 is the due date for payroll taxes of all checks dated in the monthly of July.
  • Wednesday and Friday of each week for Semi-weekly depositor – Payroll taxes are due on Wednesday for checks issued on prior Wed, Thur and Fri. Taxes are due on Friday for checks issued on Sat, Sun, Mon and Tues earlier.
  • Next banking day – Payroll taxes are due to the IRS by the next banking day if the amount for one single payday is more than $100,000.
  • Quarter-end, 1/31, 4/30, 7/31 & 10/31 – When the total taxes for the prior or current quarter (expected) is less than $2,500, the taxes can be deposited with the return (form 941). If you not sure about the current quarter, you may want to deposit monthly.
  • Quarter-end is also when the FUTA tax is due, regardless of the deposit schedule for other taxes (Income, SS and Medicare taxes).

The following flow chart shows how to determine your specific deposit day.

Payroll Tax Deposit Schedule Chart

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Can I used my own EFTPS PIN to pay taxes from Paycheckmanager.com?

You can not use your own EFTPS PIN to deposit taxes from Paycheckmanager.com. You need to enroll in our service and pay through our PIN.

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Where do I enter the taxes I have already paid on my own?

You can go to 'Pay Payroll Tax' under 'Pay Taxes', click 'already paid' link on each tax item that you have already paid on your own. If you click 'already paid' by mistake, you can go to 'Tax Payment Stutas' to cancel the action.

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What is a signature PIN, form 8655, etc.?

The IRS e-file system for 941/944/940 forms require a signature PIN. The 94X eFile PIN is only good for filing 941/944/940 forms. It is different from EFTPS PIN or any other PINs you may have for different IRS eFile programs.

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