1. Money

All About Payroll Taxes

How to Calculate, Pay, Report Payroll Taxes

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Payroll Taxes are those taxes you withhold from employees for income tax and FICA (Social Security/Medicare) and pay as an employer. You must collect these taxes, pay the taxes to the IRS, report on taxes paid, and file payroll tax reports. Let's start from the beginning:

1. What are Payroll Taxes?

Payroll taxes include:

  • Amounts withheld from employee pay for income taxes owed by the employees
  • Amounts withheld from employee pay for social security and Medicare, which are
  • Matched by amounts employers must contribute for social security and Medicare.

Payroll taxes are called "trust fund taxes," because they are held in trust for the owner (the IRS and Social Security Administration).

2. What is My Responsibility as an Employer for Payroll Taxes?

Employers are responsible for:

  • Collecting appropriate payroll tax documents from employees at hire and other times
  • Correctly calculating payroll taxes and withholding them from employee pay
  • Paying payroll taxes to the IRS and other taxing authorities
  • Filing payroll tax reports in a timely manner.

These articles will help you with the work of calculating, withholding, paying, and filing payroll taxes.

3. How Do I Calculate Payroll Tax Deductions?

Your first responsibility as an employer is to calculate deductions for payroll taxes - federal income tax, FICA (Social Security/Medicare) taxes, and state income taxes.  This article takes you through the process of making these calculations.

4. When Must Payroll Taxes Be Paid to the IRS?

Payroll taxes which you have collected are paid to the IRS either semi-weekly or monthly, based on the total amount of payroll taxes you owe.  If you have only a few employees and a small payroll tax liability, you pay monthly; if you have many employees and a larger payroll tax liability, you pay semi-weekly.  Learn more about how to determine when you make payroll tax payments in this article.

5. How are Payroll Taxes Paid to the IRS?

Payroll taxes are paid to the IRS (which distributes the Social Security/Medicare information to the Social Security Administration either by coupon (8109 coupon) or electronically.  If you have a large payroll, you msut submit electronically.

6. How and When are Payroll Tax Reports Filed with the IRS?

You must file a report each quarter with the IRS on Form 941 - Employer's Quarterly Federal Tax Return.  This return shows:

  • The amount you have collected for income tax withholding from employees
  • The amount you have collected for FICA (Social Security/Medicare) from employees,
  • The total amount owed for FICA (including the employer portion of this tax)

You must also include the amounts you have deposited (monthly or semi-weekly) for these payroll taxes.  If your deposits are less than the amount owed, you must pay the IRS.  Form 941 is complex; take some time to read the details in this article.

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