| The Basics of Federal Payroll Tax | | | | semi-weekly tax depositors. |
| Regulations for Small Business Owners | | | | How are FICA taxes reported? |
| According to the Internal Revenue | | | | FICA taxes are reported using I.R.S. |
| Service, "small business owners often | | | | form 941-Employers Quarterly Federal Tax |
| have great responsibilities while | | | | Return. This form is filed quarterly and |
| operating and managing a business. | | | | is designed to summarize all of the |
| Before you become an employer and hire | | | | payments made throughout the quarter. |
| employees, you need a Federal Employer | | | | The form is due at the end of the month |
| Identification Number. | | | | following the quarter ending month (for |
| If you have employees, you are | | | | example, first quarters reports are due |
| responsible for several federal, state, | | | | on Aril 30th). |
| and local taxes. As an employer, you | | | | FICA Summary |
| must withhold certain taxes from your | | | | • FICA = SS @ 6.2% + medicare @ 1.45% |
| employees pay checks. Employment taxes | | | | = 7.65% |
| include Federal income tax withholding, | | | | • FICA is paid by both the employer |
| social security and medicare taxes as | | | | and the employee. This is referred to as |
| well as federal unemployment taxes. | | | | a matching tax. |
| Federal Tax Identification Number | | | | • I.R.S. form 941-Employers Quarterly |
| Also known as an Employer Identification | | | | Federal Tax Return is used to file this |
| Number (EIN). It is used by the federal | | | | tax. |
| government (the IRS in this case) to | | | | • FICA taxes are paid on either a |
| identify a business entity for the | | | | monthly or semi-weekly basis. |
| purpose of filing federal taxes. | | | | Federal Withholding Tax |
| • Generally speaking, most businesses | | | | What is Federal Income Tax Withholding? |
| must have an EIN #. | | | | The amount withheld from an employees |
| • FEI # can be applied for by mail, or | | | | paycheck each pay period. |
| online, by using an SS-4 form. | | | | What is the Federal Income Tax |
| • You can file for an FEI # online at | | | | Withholding rate? |
| About the Electronic Federal Tax Payment | | | | The rate is determined by following a |
| System (EFTPS) | | | | formula table designed by the I.R.S. The |
| According to the Internal Revenue | | | | formula takes into account the number of |
| Service, "EFTPS is a service provided | | | | deductions and marital status on an |
| free by the U.S. Department of the | | | | employees W-4 form, as well as the |
| Treasury that enables businesses and | | | | amount of wages an employee earns in a |
| individuals to make their federal tax | | | | given pay period. The IRS provides a |
| payments electronically, 24 hours a day, | | | | free withholding calculator here: |
| 7 days a week. | | | | Who pays Federal Income Tax? |
| Based on the information you submit on | | | | Only the employee pays this tax. It is |
| your application (FEI# application) or | | | | not matched by the employer. |
| if you indicate you will have employees, | | | | How is Federal Income Tax Withholding |
| you will automatically be enrolled in | | | | paid? |
| EFTPS so you can make all your deposits | | | | Federal Withholding Tax is paid at the |
| online or by phone. Within a few days | | | | same time FICA taxes are paid. The |
| you will receive instructions by mail | | | | required deposit is the total combined |
| for activating your EFTPS enrollment. | | | | FICA and Federal Withholding Tax |
| You will also receive an EFTPS Personal | | | | collected from employees. See the |
| Identification Number (PIN) that you | | | | section on FICA tax for more information |
| will use to make your payments, as well | | | | on how the deposits are made. |
| as instructions for obtaining an | | | | How are Federal Income Tax Withholding |
| Internet Password you will need if you | | | | taxes reported? |
| wish to make your payments online." | | | | Again, Federal Withholding Taxes are |
| FICA (Federal Insurance Contributions | | | | reported together with FICA taxes. Both |
| Act) | | | | taxes are reported simultaneously on the |
| What is FICA? | | | | same I.R.S. form 941. |
| FICA is a federal tax paid to the I.R.S. | | | | FUTA (Federal Unemployment Tax Act) |
| FICA basically consists of two parts. | | | | What is FUTA? |
| The first part is social security taxes | | | | Contributes to a fund that pays |
| and the second part is medicare. | | | | unemployment compensation to workers who |
| • Social security and Medicare taxes | | | | lose their jobs. |
| pay for benefits that workers and | | | | What is the FUTA tax rate? |
| families receive. Social security tax | | | | The FUTA tax rate is .8% (or .008). |
| pays for benefits under the old-age, | | | | Who pays FUTA tax? |
| survivors, and disability insurance part | | | | Only employers pay this tax. Employees |
| of FICA. Medicare tax pays for benefits | | | | do not have this amount deducted from |
| under the hospital insurance part of | | | | checks. |
| FICA. | | | | How is FUTA tax paid? |
| What is the FICA tax rate? | | | | FUTA tax is paid annually to the I.R.S. |
| The social security tax rate is 6.2% and | | | | and is due by January 31st. |
| the medicare rate is 1.45%, for a total | | | | How are FUTA taxes reported? |
| FICA rate of 7.65%. The two parts are | | | | Using a Form 940-Employer's Annual |
| normally lumped together and referred to | | | | Federal Unemployment Tax Return. |
| as the FICA tax, though they are | | | | Summary of Tax Reporting Forms |
| sometimes listed separately. | | | | 941-Employers Quarterly Federal Tax |
| Who pays FICA taxes? | | | | Return-Used to report FICA and Federal |
| Both the employer and the employee pay | | | | Withholding Tax payments. Remember that |
| FICA taxes. The employer matches the | | | | the actual payments are not sent in with |
| 7.65% paid by the employee, so that each | | | | the form. Instead, the payments are made |
| party pays the same amount in FICA | | | | either monthly or semi-monthly to the |
| taxes. This is referred to as a matching | | | | I.R.S. |
| tax. | | | | The 941 form is due by the last day of |
| How are FICA taxes paid? | | | | the month following the quarters end |
| FICA taxes are paid to the I.R.S. either | | | | (for example, first quarters reports are |
| monthly or semi-weekly, depending on how | | | | due on Aril 30th). |
| old the business is and how large their | | | | Form 940-Employer's Annual Federal |
| tax burden is. | | | | Unemployment Tax Return-Used to report |
| • Monthly tax depositors must deposit | | | | FUTA tax to the I.R.S. at the end of a |
| each month's taxes by the 15th day of | | | | calendar year. The payment and the |
| the following month (for example, taxes | | | | report are filed together. |
| from paydays during July are deposited | | | | The 940 form is due by January 31st. |
| by August 15). | | | | Other Forms |
| • Semi-weekly tax depositors make | | | | (A link to these forms can be found at |
| payments as follows: For wages paid | | | | W-4 form-The form and its worksheet are |
| Saturday, Sunday, Monday, or Tuesday, | | | | used to calculate and document the |
| deposit by the following Friday. For | | | | proper withholding from each paycheck. A |
| wages paid Wednesday, Thursday, or | | | | completed w-4 form must be retained for |
| Friday, deposit by the following | | | | each employee before they can receive a |
| Wednesday. | | | | paycheck. |
| • New employers who have never filed a | | | | I9 Form-Used primarily for citizenship |
| form 941 before are automatically | | | | verification purposes. All U.S. |
| monthly tax depositors for the first | | | | employers are responsible for completion |
| calendar year of the business. | | | | and retention of Form I-9 for each |
| Established businesses that pay less | | | | individual they hire for employment in |
| than $50,000 in annual FICA and Federal | | | | the United States. The form must be |
| Withholding Tax (this tax will be | | | | available for inspection by the |
| reviewed in the next section), are also | | | | authorized U.S. Government officials |
| monthly tax depositors. | | | | (i.e., ICE, Department of Labor). This |
| • Established businesses that pay more | | | | form is not currently required to be |
| than $50,000 in annual FICA and Federal | | | | files with any government agency, but it |
| Withholding Taxes will be defined as | | | | should be kept on site by employers. |