Payroll Compliance Guide: Laws, Risks, & Best Practices

While business owners often hire an accountant or other tax professional to deal with these matters for them, having a basic understanding of the tax system can head off a lot of problems. With all of this information in mind, you might be wondering what you have to do, as a small business owner, when it comes to payroll taxes. Essentially, as an employer, you’re held to certain government requirements. When calculating payroll taxes, you’ll want to keep in mind that all types of wages count. Salary, tips, bonuses, commissions, overtime pay, back pay, and accumulated sick pay are all considered taxable income. However, outside of regular wages, other types of wages are called supplemental wages.

Business stage

The quarterly deadlines for depositing your FUTA taxes are April 30, July 31, October 31, and January 31 (identical to the filing deadlines for Form 941). As with FICA taxes, you should deposit the FUTA taxes on EFTPS. If your FUTA tax liability is less than $500 in a year, however, you can include payment along with Form 940 instead of depositing the taxes on a quarterly basis.

Filing Employer Tax Returns

Employers must file returns by set deadlines (explained below). Usually, employer tax returns are filed electronically through an authorized e-file Provider or software purchased specifically for this purpose. Typically employers deduct the necessary taxes and contributions from workers’ salaries and remit them to the Internal Revenue Service (IRS) and relevant state tax agencies. Payroll compliance doesn’t have a “one-size-fits-all” approach since the governing labor and payroll laws vary so widely. With that in mind, here are some of the most common laws employers are likely to encounter.

Payroll Taxes: Rates and Filing Deadlines

• A payrolling agency legally employs your staff, handling payroll administration, contract creation, worker updates, sick reports, and pay stubs.
• It is the most affordable way to do payroll (if you can do it quickly and don’t have a large number of employees).
• To ensure that you do things correctly, consider outsourcing payroll to a payroll service provider.
• Failing to deposit federal tax withholdings on time can result in penalties of up to 15%.
• The amount of money taken out of each paycheck depends on what the employee indicated on their W-4 form when they were hired.

It is the most affordable way to do payroll (if you can do it quickly and don’t have a large number of employees). If you do manual payroll, you can implement any changes to an employee’s classification or deductions quickly and easily. Avoid paying late because it can cost your business more money in the form of penalties that you will be required to pay. Additional withholding rules apply to commissions and other forms of compensation. The Social Security tax only applies to the first $168,600 of income in 2024. This cap is referred to as the Social Security wage base and it’s adjusted every year for inflation.

Whenever you pay your employees, there are certain taxes that you have to withhold from their paychecks. Add to this the responsibility of filing tax forms and making payroll tax deposits, and it’s no wonder that most small business owners feel intimidated. FUTA imposes a tax on the first $7,000 of wages for each employee.

FICA taxes are used to fund the nation’s social security and Medicare programs, and both employers and employees pay these taxes. People commonly refer to all taxes deducted in payroll as payroll taxes. Taxes are constantly changing, and payroll taxes can be an administrative employers responsibilities for payroll do not include burden on a smaller employer. Manually calculating, withholding, and submitting payroll taxes can be overwhelming. The second method for calculating federal withholding is the Percentage Method. However, it is more complicated than the Wage Bracket Method.

• Payroll taxes consist of income taxes (federal, state, and sometimes local) and FICA taxes (Social Security and Medicare).
• This form explains how much money should be withheld from each paycheck to cover federal income taxes.
• A payroll tax holiday is a deferred or suspended collection of taxes.
• We offer guidance on payroll tax planning and issues, conflict resolution, and team-based consultation with your staff or outside lawyers, bookkeepers, and benefits managers as needed.
• Payroll taxes also include contributions to Social Security and Medicare for both the employee and employer, as well as federal unemployment tax (FUTA) and state unemployment tax.

State and Local Taxes

The best way to make sure that payroll taxes are withheld, accounted for, reported, and paid is to set up a system that works automatically. The consequences of improperly processing payroll taxes can be significant. To ensure that you do things correctly, consider https://www.bookstime.com/articles/process-costing outsourcing payroll to a payroll service provider. Withholding, filing, and remitting payroll taxes can be complicated tasks, but they are ones that you as a business owner must get right. Yes, payrolling and employer of record services are still allowed.

Company Size

• Percentage tables also allow for the calculation of tax withholding for employees whose incomes are higher than those reflected in the wage bracket tables.
• It isn’t withheld from the employee’s paycheck — you as the employer pay it.
• The best way to make sure that payroll taxes are withheld, accounted for, reported, and paid is to set up a system that works automatically.
• And, how do you know how much to withhold from employees’ wages?
• If your FUTA tax liability is less than $500 in a year, however, you can include payment along with Form 940 instead of depositing the taxes on a quarterly basis.
• Generally, employers are required to report and deposit payroll taxes on a regular schedule, typically quarterly.