Responsibility to Remit Federal Payroll Taxes
The employer and the employee pay federal payroll taxes. The employee pays it via payroll withholding; the employer makes its own payment. The employer is responsible for remitting employer and employee federal taxes to the Internal Revenue Service.
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Types
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The employer withholds Medicare tax, Social Security tax and federal income tax from employees' incomes. Medicare tax is the hospital insurance portion of the Federal Insurance Contributions Act; Social Security tax is the old-age, survivor's and disability insurance. Federal income tax is used to fund national programs, including law enforcement, community development, foreign affairs and defense. The employer pays federal unemployment tax, Medicare tax and Social Security tax. Federal unemployment tax is used with state unemployment tax to give unemployment benefits to qualified former employees.
Payment Method
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The employer makes deposits for Social Security tax, Medicare tax and federal income tax liabilities together to the IRS via Electronic Federal Tax Payment System (EFTPS). The system is free to use -- the employer can enroll by calling the IRS or via its website (see page 20 of IRS Circular E). If it does not want to use the electronic funds transfer, it can arrange for a tax professional, payroll service provider or its financial institution to make the payment on its behalf. The employer makes separate tax deposits for its federal unemployment tax liabilities via EFTPS.
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Remittance Frequency
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The employer makes Social Security tax, Medicare tax and federal income tax payments to the IRS according to the frequency its dictates, typically semiweekly (twice per week) or monthly. For example, if a payday falls on Wednesday, Thursday or Friday, the employer makes the deposit by the following Wednesday. The employer makes federal unemployment tax deposits of no less than $500 by the last day of the month following the quarter-end. If the deposit is less than $500, the employer carries over the balance to the next quarter and pays in the quarter that it accumulates at least $500. The employer can use the Circular E to determine its payment schedules.
Reporting
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The employer files tax returns reporting its Social Security tax, Medicare tax and federal income tax liabilities quarterly via Form 941. It can file annually using Form 944 if the IRS gives written consent. The employer files federal unemployment tax returns annually via Form 940. If its unemployment tax liability for the last quarter of the year is less than $500, the employer can make a credit card payment or make the payment with its federal unemployment tax return by the end of January.
Warnings
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The IRS charges the employer deposit penalties for late tax deposits; the amount depends on the tardiness of the deposit. It also penalizes the employer for failing to use the required payment method and for tax errors a third party makes.
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