One of the most critical tasks for any business owner is understanding and complying with federal employment taxes. From correctly withholding payroll taxes to depositing and reporting those amounts to the IRS and other government agencies on time, business owners have a legal obligation to follow tax deposit and reporting rules. Neglecting those rules could subject your business to penalties, interest and unnecessary paperwork headaches. Below is a general guide to help you understand the basic requirements your business must follow when depositing employment taxes, filing employment tax forms and reporting employment taxes to the federal government during the year.

Deposit Employment Taxes

Federal income tax, Additional Medicare tax, employer Social Security tax, and employee Social Security and Medicare taxes withheld must be deposited according to one of two schedules:

• Monthly
• Semi-weekly

Beginning each year, you should determine which schedule you should follow. Publication 15 (Forms 941 and 943) and Publication 15 (Occupational Tax Income Guide) explain how to figure out which payment schedule you should use. For Form 945, see Publication 51.

Federal unemployment tax (FUTA) Form 940 Deposits

Deposit the tax for the quarter once the tax due exceeds $500. Deposit any tax due by the last day of the month after the end of the quarter.

Electronic deposit

Federal taxes should be deposited electronically through funds transfer. Visit Pay Employment Taxes Electronically for more information. Deposits can be made without charge by:

• Business tax account.
• Direct Pay (business).
• Electronic Federal Tax Payment System (EFTPS)..
• The following methods may result in a fee.
• Have your financial institution initiate an ACH credit payment on your behalf.
• Have a trusted third party (i.e., tax professional, payroll service) pay the tax on your behalf.
• Have your financial institution complete a same-day tax wire payment for you.

Reporting Employment Taxes

Employers are generally required to report an employee’s wages, tips and other forms of compensation. File the required form(s) to the IRS and report taxes you deposit by filing Form 941, Employer’s Quarterly Federal Tax Return, Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, Form 944, Employer’s Annual Federal Tax Return, Form 945, Annual Return of Withheld Federal Income Tax and Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return on paper or electronically. Visit our E-file Employment Tax Forms page for more information. There may be a fee to file these forms electronically.

Federal Income Tax and Social Security and Medicare Taxes

Generally, if you withhold federal income tax or Social Security and Medicare taxes from employees you must file Form 941, Employer’s Quarterly Federal Tax Return.

Include federal income tax and Social Security and Medicare taxes withheld on sick pay payments and supplemental unemployment benefits.

Form 943 should be filed if you paid wages to 1 or more employees who worked on a farm and:

Subject to federal income tax withholding.

Pay subject to Social Security and Medicare taxes.

File Form 944, Employer’s Annual Federal Tax Return, if you receive a notice requesting that you file Form 944.

If you withhold or are required to withhold federal income tax (including withholding under the backup withholding) from any nonpayroll payments, you should file Form 945.

Federal Unemployment Tax Act (FUTA)

FUTA tax is paid by the employer and is not deducted from the employee’s wages. File Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return to report your FUTA taxes.

Form W-2

Employers are responsible for reporting wages, tips and other compensation paid to an employee on Form W-2, Wage and Tax Statement. File completed Copy A of all paper and electronic Forms W-2 with Form W-3, Transmittal of Wage and Tax Statement to the SSA. File Copy 1 of Form W-2 to the employee’s state or local tax department if required. W-2s must be furnished to employees by January 31 and filed with SSA by January 31 each year.

Employers who file 10 or more information returns (Forms 1099 series, Form 1042-S and Form W-2) are required to file their returns electronically. Most information return types should be combined by a filer to determine whether the filer meets the 10-return filing threshold. For more information about filing requirements see Employer W-2 Filing Instructions & Information on SSA’s website.

Due Dates

Visit Employment Tax Due Dates for depositing and filing due dates. Publication 15, Employer’s Tax Guide, has more information on depositing and filing these forms.