| And to help put your mind at ease, remember that payroll taxes are not as
bad as they seem. Granted the government has done everything humanly possible
to make them as complicated as possible, but once you get the swing of it,
you will find it to be quite simple. Plus, the IRS has some publications
available to assist you and the state department of unemployment is very
helpful. Good luck! |
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Withholding
|
| Withholding is more time consuming than complicated once your learn how
to do it. You must remember that there are three taxes to withhold: social
security, medicare and federal income tax. |
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In order to properly withhold taxes you must consult IRS publication "Circular
E". This publication is updated annually, or as often as congress sees
fit to mess with it. The Circular E contains information with regard to
payroll taxes as well as tables which tell you the proper amounts to withhold. |
|
| Social Security Tax- This tax is based on 6.2% of the employee's gross pay
up to $76,200 per year and can be determined in one of two ways. You can
either multiply the employee's gross pay by 6.2%, or you can use the social
security tax table in the Circular E. |
| Medicare Tax- This tax in based on 1.45% of the employee' gross pay with
no maximum per year and can be determined in either of the two methods mentioned
for social security taxes. Except in this case you multiply the gross wages
by 1.45% or consult the medicare tax table. |
| Federal Income Tax- You must use the Circular E to determine federal income
tax to be withheld, but before you can you must determine the employee's
withholding status. This is accomplished by having them fill out a form
W-4. |
| The W-4 will tell whether to withhold as single or married as well as how
many exemptions to take. You will then use this information along with income
tax withholding tax table in the Circular E to determine the amount of tax
to withhold. |
| There are various tables based on the frequency by which you pay (weekly,
monthly, etc.) and by either Single or Married. Pick the one which applies.
Then find the employee's gross pay in the left hand column and follow the
line across until you reach the column which reflects the proper number
of exemptions. The amount in that column is the tax to withhold. |
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|
| In the event the gross pay exceeds the amounts in the table, you will need
to use the formulas on the pages which proceed the tables. |
Tax Deposits
|
| The law requires that you remit payroll taxes to the government in a timely
manner in order to avoid penalties. |
| The amount of tax due is equal to double the amount of social security and
medicare tax (this is because the employer must match these taxes withheld)
plus the income tax withheld. For example: |
 |
| Social Security Tax - Employee's half |
6.20 |
| Medicare Tax - Employee's half |
1.45 |
| Social Security Tax - Employer's half |
6.20 |
| Medicare Tax - Employer's half |
1.45 |
| Income Tax Withheld |
10.00 |
| Total Tax Due |
$ 25.30 |
|
|
| There are four basic categories to determine when to pay payroll tax deposits.
The first two are based on a four quarter "lookback" period. |
| 1) If taxes during the "lookback" period are $50,000 or less,
then you must remit the taxes for the month by the 15th of the next month.
If you are a new employer you will also deposit using the monthly rule.
This must be remitted to a qualified depository using a form 8109. (Generally
your commercial bank will be a qualified depository.) This form is really
just a coupon and you must indicate on it the amount of tax being deposited.
You must also check the box marked "941" and the box indicating
the quarter to which the tax applies. |
| 2) If taxes during the "lookback" period exceed $50,000, you will
need to deposit taxes using the semiweekly method. This means that if your
payday is on a Wednesday, Thursday or Friday, you will need to make a deposit
by the following Wednesday. If your payday is on a Saturday, Sunday, Monday
or Tuesday, your deposit is due on the next Friday. |
| 3) If your taxes for the quarter are less than $500, then you do not have
to make deposits and can remit the tax with your Form 941. |
| 4) If at the end of any day you owe $100,000 or more, you must deposit the
tax by the end of the next banking day. Of course, if you have a payroll
that big, you probably aren't reading this brochure. |
Payroll Tax Reports
Some payroll tax returns are filed on a quarterly basis and some on an
annual basis.
Each quarter you must file a Form 941 to the IRS by the end of the month
following the quarter (for example, April 30 for the first quarter). On
this form you report the gross pay, all withholding and matching of taxes
and the amount of deposits made. Based on how you made deposits, tax may
be due with this return. |
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|
| Each quarter you will also file a state unemployment tax return. In Florida
this is called a Form UCT-6. On this form you report individual wages and
calculate unemployment tax due. You must then remit a check with this return.
Unemployment tax is an employer's expense and is never withheld from the
employee's check. |
| Although there is no quarterly form filed for federal unemployment you will
need to make a quarterly deposit by the last day of the month following
the quarter if the amount due is $100 or more. The tax is figured by multiplying
gross wages for each employee up to $7,000 for a year by .8%. You deposit
the tax using the Form 8109 like you do for the taxes mentioned above, but
this time check the box marked "940". |
| Annually you will file Forms W-2. These will report the total wages paid
as well as taxes withheld for the year for each employee. The Forms W-2
will be accompanied by a Form W-3, which is a transmittal letter. The W-2's
are due to the employees by January 31 and the copies along with the W-3
are due to the Social Security Administration by the last day of February. |
| Annually you will also need to file a Form 940 to report the federal unemployment
tax. This will show the total and taxable wages for the year along with
any unemployment tax deposits made. Additional tax may be due with the return.
This is due by January 31. |
CONCLUSION
|
| As I've already mentioned, it really isn't as bad as it seems. And remember,
at Jeffrey L. Sailor, CPA, we do this stuff all the time and we'll be glad
to assist in any way possible (except of course for paying the tax). Please
feel free to call us if you need any help or if you would like us to handle
any or all parts of your payroll process for you. |
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Frequently Asked Tax Questions |
|
How To Prepare a Budget |
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Guide To Payroll Taxes |
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Links to Other Resources |
|
Guide To Independent Contractors |
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