Small business owners often have great responsibilities while operating and managing a business. Before you become an employer and hire employees, you need a Federal Employer Identification Number (EIN).
If you have employees, you are responsible for several federal, state and local taxes. As an employer, you must withhold certain taxes from your employees' wages. Federal employment taxes include the following.
-
Federal income tax withholding
-
Social Security and Medicare taxes
-
Federal unemployment tax (FUTA)
Federal Income Taxes/Social Security and Medicare Taxes
You generally must withhold federal income tax from your employees' wages. To figure how much to withhold from each wage payment, use the employee's Form W-4 and the methods described in Publication 15, Employers Tax Guide and Publication 15-A, Employer's Supplemental Tax Guide (PDF).
Social Security and Medicare taxes pay for benefits that workers and families receive under the Federal Insurance Contributions Act (FICA). Social Security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. Medicare tax pays for benefits under the hospital insurance part of FICA. You withhold part of these taxes from your employee's wages and you pay a matching amount yourself.
Which form do I file to report federal Income Taxes, Social Security, and Medicare taxes?
-
Form 941, Employer's Quarterly Federal Tax Return
-
Form 943, Employer's Annual Federal Tax Return for Agriculture Employees (For use by farm employers)
-
Form 944, Employer’s Annual Federal Tax Return
Federal Unemployment (FUTA) Tax
The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. You report and pay FUTA tax separately from Social Security and Medicare taxes and withheld income tax. You pay FUTA tax only from your own funds. Employees do not pay this tax or have it withheld from their pay.
Depositing Taxes
In general, you must deposit income tax withheld and both the employer and employee Social Security and Medicare taxes (minus any advance EIC payments) by depositing electronically, mailing or delivering a check, money order, or cash to a financial institution that is an authorized depositary for federal taxes. You can make your deposits using Electronic Federal Tax Payment System (EFTPS). This is a tax payment system provided free by the U.S. Department of Treasury, which allows businesses to pay federal taxes electronically via the Internet or phone 24/7. Visit EFTPS for more information or to enroll. Some taxpayers are required to deposit using the EFTPS. See Publication 15, Employer's Tax Guide, under How to Deposit - Electronic Deposit Requirement.
For additional information, refer to our Employment Taxes for Small Businesses page.
Certain Taxpayers May Now File Their Employment Taxes Annually
To reduce burden for certain small business taxpayers, employers who have an Employment Tax liability of $1,000 or less for the year will now file Form 944, Employer’s Annual Federal Tax Return, instead of Form 941, Employer’s Quarterly Federal Tax Return. Eligible taxpayers will be notified by mail.
Preparing and Filing Form W-2
At the end of the year, the employer must complete Form W-2, Wage and Tax Statement(PDF). Employers use Form W-2, Wage and Tax Statement to report wages, tips and other compensation paid to an employee. The form includes the employee's withheld income tax, Social Security tax and any advanced earned income tax credit payments. A copy of this form must be given to the employee by January 31st after the end of the year. You must also send a copy of the W-2 to the Social Security Administration (SSA). Filing these forms timely is important to ensure employees are credited with the proper Social Security amounts for retirement. Employers can prepare and file up to 20 W-2s at a time, free of charge, at the Social Security Administration’s Web site. Using SSA’s online W-2 filing, employers can also print out all the necessary copies of the W-2 for their employees, state taxing agencies, etc.
The due dates for filing Forms W-2 with SSA are:
- The last day of February for paper forms
- March 31 for forms filed electronically
The IRS and Social Security Administration (SSA) exchange employment tax data. The Combined Annual Wage Reporting (CAWR) is an IRS document matching program that compares amounts reported to the IRS with amounts reported to SSA. When there is an imbalance, the employer is asked to provide information to help resolve the discrepancy.
References/Related Topics
-
-
-
-
Online Classroom, Lesson 7 - How to manage payroll so you withhold the right amount from employees
-
Online Classroom, Lesson 9 - What you need to know about Federal Unemployment Taxes (FUTA)
-
W-2 Online, Create, save, print, and submit Forms W-2 and W-2c online.
-
Rate the Small Business and Self-Employed Web Site
|