IRS & Payroll Tax Deposits
Your business accrues payroll tax liability each time you subtract federal payroll withholding from an employee's paycheck. In addition to the taxes you withhold, you also accrue your employer's matching share of your employees' Social Security and Medicare payments. You must file federal payroll tax forms every quarter, but you must deposit these taxes in the bank and make sure that the IRS receives them on a monthly basis.
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Calculating Income Tax Liabilities
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Calculate the income tax withholding that you must subtract from each employee's paycheck by referring to the federal withholding tax table that corresponds to that employee's filing status, such as married or single. Find the line that corresponds to his weekly, biweekly or monthly wage as well as the column that matches the number of deductions that he has claimed on his W-4 form. This number represents his income tax liability for the period in question. Subtract this figure from your employee's paycheck and set the sum aside for your federal payroll tax deposit.
Calculating Social Security and Medicare Taxes
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Multiply your employee's gross wages for the payroll period by .062 to calculate his Social Security tax liability, and multiply his wages by .0145 to calculate his Medicare withholding. Subtract these amounts from his paycheck and set them aside. Also set aside a matching amount out of your company's funds, which is your employer's federal payroll tax liability.
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Depositing Payroll Taxes
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Visit the Electronic Federal Tax Payment System website and set up an account using your business name and Employer Identification Number. Alternately, set up a payroll tax deposit account by speaking in person with a representative from your business bank and providing him with this information in person. Your bank or the IRS will mail you a federal tax deposit password in a week or two. Visit the EFTPS website or your bank's online tax payment page and use this password to electronically transfer money from your bank account for your IRS tax deposits on the monthly due date.
Reconciling Tax Deposit Payments with the IRS
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Every quarter you are required to fill out IRS Form 941, or your federal quarterly payroll tax report. This form asks for information about federal income tax that you have withheld from your employees' paychecks, as well as Social Security and Medicare withholdings, and your employer's matching contribution to these funds. Form 941 also asks for specifics about the federal tax deposits you have made during the quarter. If your federal tax deposits add up to less than your payroll tax liability, you must send in the balance with the form. If you have deposited more than you owe, you may request a refund or apply the overpayment to an upcoming quarter.
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References
- Photo Credit tax time image by Tom Oliveira from Fotolia.com
