The IRS publishes a free, downloaded Tax Calendar that contains all the federal tax due dates for the year. The calendar is available on the IRS website.
Employers are required to make federal payroll tax payments to the government, as well as filing the proper reporting and informational returns. Employers must also provide employees and contractors with W-2 and 1099 reports explaining the compensation paid and withholding amounts. There may be state requirements as well. The rules can be complex and penalties for noncompliance severe, which is why the adminsitration of payroll tax responsibilities is often outsourced by small businesses.
Properly handling payroll tax responsibilities involves not only making sure that your federal and state taxes are paid and reported to the appropriate tax agencies, but also includes reporting obligations to employees and contractors, as well as recordkeeping requirements. Accurate and timely compliance is the key to avoiding payroll tax penalties!
When you hire your first employee, you'll need to register with the IRS and, perhaps, your state and local tax agencies. In addition to assigning you an employer identification number (EIN) for use on all your correspondence, deposits, returns, and other documents, the tax agencies will usually supply you with information about your specific payroll tax obligations and with the forms you'll need to use when you deposit the taxes and file returns.
For federal payroll tax purposes paying the government the money you owe and filing supporting returns that show how you computed the taxes are done separately:
Federal tax deposits must be made electronically, beginning in 2011. There are four methods that an employer can use to electronically transmit tax payments:
Limited exception to electronic filing requirement. Small businesses with a federal tax liability of less than $2,500 per quarter still have the option of mailing a check with their quarterly returns.
Different deposit rules apply to income and FICA taxes and to FUTA taxes.
The IRS publishes a free, downloaded Tax Calendar that contains all the federal tax due dates for the year. The calendar is available on the IRS website.
Income and FICA taxes deposit rules. Generally, you must deposit these taxes on a monthly basis or a semiweekly basis. Toward the end of each year, the IRS tells you which method you should use during the upcoming calendar year.
If your employment taxes for a quarterly period are less than $2,500, you can remit the taxes with your quarterly (Form 941) return in lieu of depositing them.
Assuming that your total taxes for the quarter are $2,500 or more, you will be on a monthly or semiweekly schedule, depending on the amount of income and FICA taxes you reported during a specified "lookback period." For each calendar year, the lookback period is the four-quarter period ending on June 30 of the prior year. For 2013, the lookback period is July 1, 2011, to June 30, 2012.
If you reported $50,000 or less in taxes during the lookback period, you deposit on a monthly basis. Otherwise, you deposit on a semiweekly basis.
All new employers deposit their taxes on a monthly basis for their first calendar year, because their tax liability for the lookback period is considered to be zero.
Under monthly depositing, you deposit the taxes that you're required to withhold or pay on wages paid during a calendar month by the 15th day of the following month.
Under semiweekly depositing you must deposit the taxes that you're required to withhold or pay on wages for a given pay period within the next week. Specifically, you must deposit the taxes associated with wages you pay on Wednesday, Thursday, or Friday by the following Wednesday. You must deposit the taxes associated with wages you pay on Saturday, Sunday, Monday, or Tuesday by the following Friday. However, in no event will you have less than three business days to make your deposit. A business day is any day other than a Saturday, Sunday, or “legal holiday” (i.e., a legal holiday in the District of Columbia).
For example, if you were a semiweekly depositor who paid wages on Friday and the following Monday was a legal holiday in the District of Columbia, you would have until the following Thursday (instead of Wednesday) to make your deposit.
Whenever you deposit less than you're required, you run the risk of being hit with a penalty on the underpaid amount. However, as long as any shortfall does not exceed the greater of $100 or 2 percent of the amount you should have deposited, no underpayment penalty will be assessed.
Monthly depositors must make up any shortfall by the due date for their quarterly return. Semiweekly depositors have until the first Wednesday or Friday (whichever is earlier) falling after the 15th day of the month following the month in which the shortfall occurred or, if earlier, the due date for their quarterly return.
FUTA tax deposit rules. Generally, you must deposit your federal unemployment taxes on a quarterly basis. However, if your quarterly FUTA tax liability is $500 or less, you don't have to deposit it. Rather, you may carry it forward and add it to your FUTA liability for the next quarter. If your liability for the last quarter of the year (plus any undeposited amounts from prior quarters) is $500 or less, you have the option of either depositing the tax or remitting it with your annual return.
Assuming your quarterly FUTA tax liability is more than $500, you must make your quarterly FUTA deposits by the last day of the month that follows the end of each quarter:
| Ending date of quarter | Deposit due date |
| March 31 | April 30 |
| June 30 | July 31 |
| September 30 | October 31 |
| December 31 | January 31 |
“Business days” and “legal holidays.” What if the date that you're required to make a federal tax deposit falls on a nonbusiness day? In that case you have until the close of the next business day to make a timely deposit. A business day is any day other than a Saturday, Sunday, or “legal holiday.” A “legal holiday” is any legal holiday in the District of Columbia. Other holidays, such as statewide legal holidays, do not delay the due date.
An example of how this rule works is that if your deposit's due date happens to fall on a Friday that is a legal holiday in the District of Colombia, you'll have until the end of the following Monday to make your deposit.
Timeliness of deposits. Because you can be assessed penalties for failing to make a tax deposit when it's due, you don't want to be late with your deposits. In general, the timeliness of a deposit is determined by the date it's received.
However, for few businesses that are still eligible to make payments other than by electronic funds transfer, a mailed deposit received after the due date will be considered timely if you can establish that it was mailed at least two days before the due date, by sending the deposit by registered or certified mail and requesting a return receipt.
Most financial institutions have a specific daily cut-off time for recording deposits. Any deposits received after that time won't be recorded until the following day. So, if you're a qualifying small business and you plan to make deposits in person, be sure to arrive before the cut-off time.
Also, if you're planning to make your deposits using checks drawn on a bank that is different from the one where you're making your deposits, confirm whether the depository bank will consider the check an immediate payment of your tax deposits.
Along with actually depositing your federal payroll taxes, you also have an obligation to file periodic returns that show how you computed your tax liabilities. As is true for deposits, the returns you must file for your income and FICA taxes are different from the returns you file for your FUTA taxes.
Income and FICA tax returns. You must file Form 941, Employer's Quarterly Federal Tax Return, to report both the federal income taxes you withheld and the FICA taxes you withheld and paid during a calendar quarter.
The deadline for filing the return is the last day of the first month after a quarter ends. However, if you've been timely with each of your deposits during the quarter, you're entitled to an automatic 10-day extension. No other extensions are permitted for filing Form 941.
If you close your business or otherwise permanently stop paying wages that subject you to payroll taxes, you can end your obligation to file quarterly returns. You do this by designating the return for the last quarter that you pay taxable wages as a "final" return, by checking a box at the top of the return.
And be mindful that the IRS used to require, in lieu of quarterly reporting, that you file on a monthly basis if you failed to make deposits or file returns when they were due. Monthly returns, when required, were filed on Form 941-M, Employer's Monthly Federal Tax Return, and due by the 15th day of each month. Effective January 1, 2012, monthly filing may not be required and is replaced with quarterly filing.
In order to reduce the filing burden on small businesses, the IRS changed the employment tax filing requirements for eligible employers to annually rather than quarterly. Employers that estimate their annual employment tax liability to be $1,000 or less are eligible to file Form 944, Employer's Annual Federal Tax Return.
The IRS sends letters of notification to eligible businesses. Businesses that fail to receive a notification from the IRS may ask to participate in the program if they believe that their annual employment tax liability will not exceed $1,000. New businesses can apply for annual filing when filing for their employer identification number (EIN). The IRS will inform the new employer whether they qualify when the EIN is issued.
Employers that are required to file Form 944 may notify the IRS if they want to file Form 941 quarterly instead of Form 944 annually.
What about your FUTA tax obligations? For federal unemployment taxes, you must file an annual return on Form 940, Employer's Annual Federal Unemployment Tax Return. The deadline for filing the return for 2013 is January 31, 2014. However, if you've been timely with each of your FUTA tax deposits during the year, you're entitled to an automatic 10-day extension. The IRS may allow you a further extension upon your written request.
To help you determine if your deposits are timely, be aware that if the due date for your Form 941 or Form 940 falls on a Saturday, Sunday, or "legal holiday” (i.e., a legal holiday in the District of Colombia), you have until the next business day to timely file the return. A mailed return that bears a postmark indicating that it was mailed on or before the due date will be considered to have been timely filed even if it is received after the due date. If you're planning to rely on the "postmark" rule, send the return by registered or certified mail and request a return receipt. Using one of these mailing methods will give you written proof of the postmark date.
You will generally have to send tax payments to the government, and file tax returns, for two types of state payroll taxes: income taxes and unemployment taxes.
The general rule for income taxes is that each state requires employers to file a quarterly tax and wage report on or before the last day of the month following the calendar quarter; in most cases, if the due date falls on a Saturday, Sunday, or holiday, the due date is extended to the next business day.
Some states now require electronic filing for certain returns and payments.
Consult our state maps for information regarding the returns that must be filed to report state income taxes withheld and the deadlines for the remittance of those taxes and the state unemployment tax agency to contact for information and tax forms relating to unemployment taxes.
In addition to your obligation to file payroll tax returns with your taxing authorities, you have a reporting obligation to your employees and your independent contractors. In essence, you must tell the employees how much you paid them in taxable compensation and how much you withheld from their wages for federal and state income taxes and FICA taxes.
For federal tax purposes, you make the report by providing each employee a Form W-2, Wage and Tax Statement.
You must provide a Form W-2 to each employee who works for you during the calendar year. The W-2s must be distributed by January 31 of the year following the calendar year covered by the form.
Special rules apply for employees who were terminated during the course of the year. These employees may request that you provide their W-2s at an earlier date. When a terminated employee requests the W-2s earlier, you must furnish the forms within 30 days of the request or, if later, within 30 days of your last payment of wages to the employees.
If for any reason you're unable to distribute a W-2 to an employee, be sure to retain the undeliverable form as part of your records.
Filing W-2s. You must file copies of your employees' W-2s with the Social Security Administration (SSA) by the end of February. If you file electronically, the due date for the W-2s for 2013 compensation is April 1, 2014. In transmitting the forms, you should file Form W-3, Transmittal of Wage and Tax Statements.
Correcting W-2s. If you have the need to correct or replace a W-2 that you've distributed to an employee or filed with the SSA, use Form W-2c, Statement of Corrected Income and Tax Amounts.
Independent contractors. You don't provide W-2s to your independent contractors, because you generally don't withhold or pay any payroll taxes with respect to them. However, you are required to file a federal information return (Form 1099-MISC) for any independent contractor to whom you've paid at least $600 as compensation for services. Copies of the return must be provided to the contractors by January 31, and to the IRS by February 28.
State reporting. Your state may also require you to prepare information returns for employees and/or independent contractors. Consult our state map for information on the requirements in your state.
Once you've paid over your payroll taxes and filed any necessary returns and reports, your last significant obligation is to maintain records that substantiate the payroll taxes you paid.
For federal tax purposes, you must retain records for at least four years after the due date of the return or the date the taxes were paid, whichever is later. A similar record-keeping requirement exists in each state, with varying time periods.
Types of records. There is no particular form prescribed for properly retaining records. However, the records must be kept in a manner that will enable the IRS and your state tax authorities to ascertain whether any tax liability has been incurred and, if so, the extent of that liability.
The types of information you should retain include:
IRS inspection. You're obligated to keep all your required records at convenient and safe locations that are accessible to IRS representatives. And, your records must be available at all times for IRS inspections.
There really aren't too many opportunities for reducing your exposure to payroll taxes. If you hire employees and pay them any kind of compensation, it's a given that you're going to have some payroll tax liabilities. Perhaps your biggest opportunity for realizing any kind of real savings is to make sure you tend to each of your obligations and avoid getting hit with stiff penalties.
Many of the potential payroll tax penalties are the same ones you'll find when you're dealing with other types of taxes. For example, there are both criminal and civil penalties for failing to timely file payroll tax returns or to timely deposit taxes you owe. There are, however, a couple of penalties of which you should be particularly mindful as you deal with your payroll tax obligations:
100 percent penalty. The biggest risk you face in administering your payroll tax obligations is that you can be held personally liable for all income and FICA taxes that you willfully either fail to withhold from your employees' wages or fail to pay to the IRS and your state tax agencies.
Even if you avoid the 100-percent penalty because your conduct wasn't "willful," you could face smaller penalties if your failure to withhold was due to your misclassification of an employee as an independent contractor. In the context of tax penalties, willfulness requires that the individual's conduct be intentional, knowing, and voluntary.
In some cases, a reckless disregard of obvious facts will suffice to show willfulness.
Form W-2. If you fail to prepare a Form W-2 for your employees, or if you willfully furnish incorrect ones, you will be subject to a penalty, per each statement that should have been sent or that was incorrectly prepared.