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What are the Tasks Involved in Processing Payroll and Paying Payroll Taxes?

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Question: What are the Tasks Involved in Processing Payroll and Paying Payroll Taxes?
Answer:

As you consider the options for processing payroll, consider the tasks involved in processing employee payroll and in paying and reporting payroll taxes. For this discussion, assume that all of your employees are regular and not independent contractors.

Processing Payroll
You must prepare a paycheck for each employee. To do this, you must:

In addition, you must set aside an amount equal to the Social Security and Medicare deductions, and total the federal and state withholding for each employee.

Making Payroll Tax Deposits
Depending on the size of your payroll, you must make payroll tax deposits to the IRS on a semi-weekly or monthly basis for:

  • the amounts you withheld from employee pay for federal and state income taxes
  • the amounts you deducted from employee pay for Social Security and Medicare
  • the amounts you owe as an employer for Social Security and Medicare.
You can make your payroll tax deposit payments on Form 8109 or using the IRS electronic filing system (EFTPS).

Other Payroll Tax Deposits
In addition to federal withholding and Social Security/Medicare deduction payments, you must:

  • Make payments for federal unemployment tax on a regular basis.
  • Make payroll tax deposits to your state, and possibly your locality in addition to federal payroll tax deposits.

Payroll Tax Reporting
Businesses are also required to submit payroll tax reports on a regular basis. You must:

  • Submit a quarterly report to the IRS on Form 941 showing the amount of your payroll tax liability and the amounts you have paid on this liability during the previous quarter.
  • Submit an annual unemployment tax report on Form 944 to the IRS showing the amount of your unemployment tax liability and the amounts you have paid on this liability.
  • Submit other state unemployment and worker's compensation reports.
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