For small business owners, understanding how payroll taxes work can be a daunting task. Not only do you need to understand the different types of taxes and how they are paid, but also when they are due and which forms must be filed. Payroll taxes are an integral part of running a business, and it’s important to get them right to avoid fines and penalties.
What is payroll tax?
Payroll taxes are taxes that employers are responsible for withholding from employees’ wages and paying to the government. The two primary types of payroll taxes are income tax, which is paid to the federal government, and Social Security and Medicare taxes, which are paid to the state.
Income tax is withheld from employee wages based on their filing status and allowances. Social Security and Medicare taxes are withheld at a flat rate for all employees regardless of filing status or allowances. Employers must also pay employer-side payroll taxes in addition to withholding the employee-side taxes.
When are payroll taxes due?
The due dates for payroll taxes vary depending on the type of tax being paid. Generally, income tax withholdings are due on the 15th day of each month following the end of the quarter. Social Security and Medicare taxes are due quarterly on the 15th day of the month following the end of the quarter.
Employers must also file IRS Form 941 each quarter. This form reports income tax withholdings, Social Security and Medicare withholdings, as well as employer-side payroll taxes. Form 941 is due on the last day of each month following the end of the quarter.
Which forms must be filed?
In addition to Form 941, employers must file other forms with respect to payroll taxes. These include Forms W-2 for employees, Forms 1099 for contractors, Forms 940 for unemployment insurance, and state-specific forms for income tax withholding.
What happens if I don’t pay my payroll taxes?
Failure to pay payroll taxes on time can result in significant penalties from both federal and state governments. The IRS may assess penalties ranging from small fines up to criminal charges for willful nonpayment or fraudulent reporting.
The best way to avoid penalties is to make sure that all payroll tax withholdings and payments are made on time. Employers should keep careful records of all payments made and ensure that they comply with all applicable laws.