Learn everything about the taxes you pay


Small Business Owners Guide to Federal Payroll Taxes

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



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