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