Understanding Employee Payroll Tax Forms for New Business Owners

All employers, regardless of the number of employees at their company, need to make federal payroll tax payments to the IRS. Your state may require additional documentation, but all tax reports must be delivered on time with accurate information. The rules can be complex, and penalties vary, so discuss accounting matters with a professional before filing this year.

Hiring Your First Employee

All employers need a federal employer identification number issued from the IRS if you don’t already have one, and you may also require state-specific tax numbers. Employees will have an EIN (employer identification number) for deposits, correspondence, returns, and all other employee documents that a tax agency may need. Tax agencies will often supply you with information related to your payroll tax obligations and filing requirements.

Be sure to research what your employees will need when they file their own taxes. For example, pay stubs aren’t necessary for all states but can be very useful for keeping records. Use a pay stub generator if you need a document to prove income or employment quickly.

Federal Tax Deposits Must be Made Electronically

To make federal tax deposits effortless, the IRS asks businesses to transmit tax payments electronically. Small businesses with a federal tax liability of less than $2,500 per quarter can mail a check but using the following 4 methods guarantees your payment won’t get lost.

  • The Electronic Federal Tax Payment System run by the Treasury Department is a free-to-use platform for transmitting tax payments online or through a voice response system.
  • Most financial institutions can issue an ACH Credit payment through a teller.
  • A third-party payroll service or tax professional can wire a payment on your behalf.
  • Last-minute transfers can be issued through a bank under a tax wire payment.

Sometimes a deadline will fall on a bank holiday or legal holiday. If that’s the case, you have until the end of the next business day to complete the deposit. It’s important to be timely with your deposits, so you don’t incur late fees after the cut-off date.

Due Dates: Income and FICA

Small businesses are required to make quarterly tax deposits as a rule, but you may have to make a deposit semi-weekly or monthly. All companies must file an annual payroll tax return and remit taxes with that return regardless of size or capital. If you’re confused about which method you should use, the IRS will clarify this for you for the upcoming year. 

  • Annual Returns: Yearly. The IRS will allow you to opt-in for Form 944 if your annual employment tax is $1,000 or under. You can’t be an agricultural employer or be a household employer who uses forms related to being a household employer. Annual returns are also required regardless of business size, but Form 944 is specific for businesses that only do one return per year.
  • Quarterly Returns: 4 times a year. Requires Form 941, and the business must make less than $2,500 in employment taxes per quarter.
  • Monthly/Semi-Weekly: Total taxes must exceed $2,500 or more per quarter. The payment schedule is unique to each business. The IRS will contact you once your small business reaches that threshold.

Failure to Deposit Penalties

It’s common for businesses to deposit less than what is required per payment schedule because companies are required to estimate what they must pay back to the IRS. Small businesses may not know how much to deposit per year. To assess this amount, fill out the IRS form 1040-ES and place it into a savings account. Add more to the account to be safe.

The IRS will only issue a penalty charge if you don’t deposit the full amount on time, which is usually the 15th of April each year. If you’re short on a quarterly payment, the IRS will ask you to make up the difference before an underpayment issue may arise.