| The Basics of Federal Payroll Tax Regulations | | | | throughout the quarter. The form is due at |
| for Small Business Owners | | | | the 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 managing | | | | FICA 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 certain | | | | matching tax. |
| taxes from your employees pay checks. | | | | |
| Employment taxes include Federal income tax | | | | • I.R.S. form 941-Employers Quarterly |
| withholding, social security and medicare | | | | Federal 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 Number | | | | monthly or semi-weekly basis. |
| | | | |
| Also known as an Employer Identification | | | | Federal Withholding Tax |
| Number (EIN). It is used by the federal | | | | |
| government (the IRS in this case) to identify | | | | What 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 at | | | | takes into account the number of deductions |
| | | | and marital status on an employees W-4 form, |
| About the Electronic Federal Tax Payment | | | | as 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 their | | | | Only the employee pays this tax. It is not |
| federal tax payments electronically, 24 hours | | | | matched 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 you | | | | Federal Withholding Tax is paid at the same |
| indicate you will have employees, you will | | | | time FICA taxes are paid. The required |
| automatically be enrolled in EFTPS so you can | | | | deposit 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 receive | | | | employees. See the section on FICA tax for |
| instructions by mail for activating your | | | | more information on how the deposits are |
| EFTPS enrollment. You will also receive an | | | | made. |
| EFTPS Personal Identification Number (PIN) | | | | |
| that you will use to make your payments, as | | | | How are Federal Income Tax Withholding taxes |
| well as instructions for obtaining an | | | | reported? |
| 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 first | | | | What 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 families | | | | What is the FUTA tax rate? |
| receive. Social security tax pays for | | | | |
| benefits under the old-age, survivors, and | | | | The FUTA tax rate is .8% (or .008). |
| disability insurance part of FICA. Medicare | | | | |
| tax pays for benefits under the hospital | | | | Who 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 the | | | | How is FUTA tax paid? |
| medicare rate is 1.45%, for a total FICA rate | | | | |
| of 7.65%. The two parts are normally lumped | | | | FUTA 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 FICA | | | | Unemployment Tax Return. |
| taxes. The employer matches the 7.65% paid by | | | | |
| the employee, so that each party pays the | | | | Summary 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. either | | | | form. Instead, the payments are made either |
| monthly or semi-weekly, depending on how old | | | | monthly 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 deposit | | | | example, first quarters reports are due on |
| each month's taxes by the 15th day of the | | | | Aril 30th). |
| following month (for example, taxes from | | | | |
| paydays during July are deposited by August | | | | Form 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 make | | | | year. 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 the | | | | W-4 form-The form and its worksheet are used |
| business. Established businesses that pay | | | | to calculate and document the proper |
| less than $50,000 in annual FICA and Federal | | | | withholding from each paycheck. A completed |
| Withholding Tax (this tax will be reviewed in | | | | w-4 form must be retained for each employee |
| the next section), are also monthly tax | | | | before they can receive a paycheck. |
| depositors. | | | | |
| | | | I9 Form-Used primarily for citizenship |
| • Established businesses that pay more | | | | verification purposes. All U.S. employers are |
| than $50,000 in annual FICA and Federal | | | | responsible for completion and retention of |
| Withholding Taxes will be defined as | | | | Form 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. form | | | | currently 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 designed | | | | site by employers. |
| to summarize all of the payments made | | | | |