How to Submit Employment Withholding to the IRS
A small business hiring its first employees faces a frightening array of unfamiliar paperwork and deadlines. IRS greets the new employer with promises to assess penalties if the rule book isn't followed.
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Things You'll Need
- SS-4 Form or online EIN application form
- Form 941
- Form 940
- Equivalent forms for state tax payments
- FTD Payment coupons (Form 8109)
Instructions
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Fill out the online application form for an Employer Identification Number (EIN) at the IRS web site. If you would prefer to file a paper application, call (800) 829-4933 or download the form from the IRS website. You will be assigned a nine digit EIN and provided with Publication 15, the Employer's Tax Guide. You may not use your Social Security number in place of an EIN, and you must apply for a new EIN even if you take over an established business that already has an EIN.
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Establish regular paydays according to the needs of your business. You may pay as often as daily or as infrequently as monthly. The size, not the frequency, of your payrolls will determine how often and in what form you will be required to make withholding payments to IRS.
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Make monthly deposits. In your first year as an employer, you are automatically assigned a monthly deposit schedule for withholding taxes unless your accumulated tax liability is $100,000 or more. Monthly depositors must deposit the total amount due by the 15th of the following month. After the first year, you will be required to deposit taxes either monthly or semi-monthly, depending on the size of your previous year's withholding liabilities. Publication 15 explains the "lookback period" used to determine the frequency of your tax deposits.
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Track the accumulated totals of the FICA (Social Security), Medicare and federal tax amounts you've deducted from employee paychecks. Add to that total the amount of employer's matching FICA contributions. The combined total is the amount you will deposit at your bank, using a Form 8109 FTD coupon. Simply write a check from your payroll account and hand carry the FTD coupon to the bank with your check. The bank pays these amounts directly to the federal government on your behalf. If you prefer to make electronic payments directly from your bank account, you may voluntarily enroll in the Electronic Federal Tax Payment System (EFTPS).
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File Form 941 the month following the end of each calendar quarter, as provided by IRS. If you have paid the correct amounts in your monthly payroll tax deposits there should be no balance due on the quarterly reports. Any balance due should be mailed in with the report. Overpaid deposits can be refunded or applied to the following quarter's tax liability.
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Compute the employer's liability for Federal Unemployment Tax (FUTA) each payday and deposit it using an FTD coupon each quarter when the accumulated liability is more than $500. This is an employer-paid tax (not withheld from paychecks) on the first $7,000 of each employee's wages each year. The tax rate for most employees is .8 of a percent (multiply wages by .008). See Publication 15 for specific requirements and exceptions. The FUTA tax return is filed annually using Form 940 on or before Jan. 31 of the following year.
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