If you’re running a business, it’s important to stay compliant with all payroll tax laws and regulations. As an employer, this means you’re withholding and paying various payroll taxes on a regular basis to ensure your business is up-to-date with everything it needs to be. But since many business owners focus more on the day-to-day activities of running their companies, it can be easy to lose track of payroll taxes and compliance. To help you out, here’s a stress-free guide on how to stay on top of your payroll taxes every single time.
Key Payroll Tax Compliance Guidance Takeaways
Keep clean and accurate records. Good recordkeeping is one of the most important elements of payroll tax compliance.
Know the basics of federal tax withholding.
Every employee has a Form W-4 on file that determines the rate of federal income tax to withhold from each paycheck. You also need to handle two other key federal payroll taxes: FICA (Social Security & Medicare) and FUTA (Federal Unemployment Tax).
Don’t forget about employer-only taxes. In addition to federal payroll taxes, your business may have to pay state unemployment insurance taxes.
Follow all deposit and filing deadlines. Payroll taxes need to be deposited and filed according to strict IRS rules, or you could face interest and penalties.
Stay updated as rules change. Payroll tax rules and requirements are regularly updated. Keeping up with the changes is important for maintaining compliance.
Simple Payroll Tax Tips for Business Owners
Keep Your Records Clean and Organized
One of the most important things you can do to stay compliant with payroll tax laws is to keep your records clean and organized. Not only will this help with accuracy, but it will also protect you if the IRS or your State decides to audit your business.
To ensure that you’re keeping proper records, be sure to track the following information for all your employees:
- hours worked
- wages paid
- taxes withheld
By keeping detailed and accurate records of all this information, you’ll be well on your way to stay compliant with payroll tax laws.
Know the Basics of Federal Tax Withholding
Every employee you have on your payroll has a Form W-4 on file with your business. This is the form that your employees fill out that tells you how much federal income tax to withhold from each of their paychecks.
In addition to the income tax you withhold from employees, there are two other key federal payroll taxes that you are responsible for:
FICA Taxes (Social Security & Medicare)
These are the payroll taxes that you and your employees both contribute towards.
Social Security: 6.2% is withheld from the employees’ wages and 6.2% is paid by the employer, for a total of 12.4%. Note that there is an annual wage base limit for Social Security taxes. For 2025, this limit is **$176,100
Medicare: 1.45% is withheld and 1.45% is paid by the employer, for a total of 2.9%. Note that there is no wage base limit for Medicare taxes; all wages are subject to Medicare.
By understanding the basics of federal tax withholding, you’ll be able to better manage your payroll taxes and avoid any penalties or issues.
Don’t Forget About Employer-Only Taxes
In addition to federal payroll taxes, your business is also responsible for employer-only taxes.
FUTA (Federal Unemployment Tax
This tax is used to fund unemployment benefits and is paid solely by the employer.
State Unemployment Insurance
Every state has its own unemployment insurance tax that businesses must pay. The rates and requirements vary from state to state, so it’s important to familiarize yourself with your state’s specific unemployment insurance laws.
To learn more about the unemployment insurance tax in your state, visit your state’s labor department or the U.S. Department of Labor website.
Follow All Deposit and Filing Deadlines
One of the best ways to avoid payroll tax penalties is to make sure you’re depositing and filing all your taxes on time.
Deposit Schedules
The IRS assigns you a monthly or semi-weekly deposit schedule based on the amount of payroll taxes you withhold. If you miss a deposit deadline, you may be subject to interest and penalties.
Quarterly & Annual Filing
There are several different forms you may need to file on a quarterly and annual basis. Some of the most common forms include:
- Form 941 – quarterly payroll tax return
- Form 940 – annual FUTA tax return
It’s important to note that there is a special penalty under IRS rules called the **Trust Fund Recovery Penalty**. Under this penalty, any person who is responsible for withholding or depositing payroll taxes—such as an owner, officer, partner, or employee—can be held personally liable if the taxes are not properly withheld or deposited. As you can imagine, this penalty can be quite serious, so it’s important to make sure that you are always current on your payroll tax deposits and filings.
Stay Updated as Rules Change
Payroll tax rules and requirements change frequently. There are often new laws that are passed, the IRS updates its rules from time to time, and even state-level changes can impact your payroll tax obligations. So, it’s important to keep up with these changes as they happen—or at least work with someone who does—so that you’re never caught off guard and scrambling to make a last-minute change.
Don’t Be Afraid to Ask for Help
Payroll taxes can be complicated, even if you’re doing everything right. If you’re ever unsure about anything or need some expert guidance, don’t be afraid to ask The Payroll Company for help. A good payroll system provider or accountant can save you money, time, and stress in the long run. So, if you need help choosing a payroll system, figuring out how to calculate withholdings, or managing multi-state payroll, don’t hesitate to seek out professional assistance.
