- March 12th, 2013
- John Dillard
- Virtual CFO, Business/Tax Consulting, Financial Planning, Business Loans & Money Management
Payroll Reporting Guidelines with the Internal Revenue Service
The most burdensome administrative responsibility for a business owner. Whether you have one employee or a thousand, both the IRS and your state has a myriad of payroll reports and deadlines for which you are required to complete. Unfortunately there is not a one-stop shop to pay and report all of the varying deadlines and taxes. However, there is a solution that makes the reporting of payroll dramatically more seamless than if you strive to go it on your own. The easy part of preparing a payroll is the actual paycheck itself, but that is where the simplicity stops and the difficulty begins as there are a dramatic list of reports and varying deadlines to meet. However that is where the difficultly of handling your own payroll increases.
It is widely suggested that retain a payroll service to handle all of your payroll checks, payroll reports, payroll payments, W’2, W-3, Form 1099 and all payroll reporting and compliance. In fact, although I am eminently qualified to handle all of my payroll tax issues, reports and payments I also use a payroll service as this is a much better use of my time. Also, it allows me not to get bogged down in non-productive administrative issues and to focus on addressing the service needs of my clients. However it is prudent for all employers to have a good understanding of payroll tax issues and their nuances. To this end I have recapped below some of the reports and their significance.
IRS Form 941: A quarterly report for payroll to report wages, federal withholding and FICA/Medicaid. These reports are due thirty days after the close of a quarter. Form 941 reflects the withholding that employers do of FICA and Medicaid Taxes and are detailed as per the below:
-FICA. FICA insurance is taken out of an employee’s paycheck and then is matched by the employer. Like withholdings, FICA taxes taken out of an employees paycheck are treated as fiduciary monies and are required to be submitted over to the IRS with rigidly defined dates, dorms and reporting format and method of payment. FICA insurance withholdings are calculated based on a prescribed statutory rate and the maximum amount of salary this is based upon is annually indexed for inflation. These monies are given over to the Social Security Administration for monthly periodic payments to those who qualify when they retire or become disabled.
-Medicare. Medicare Insurance also is an amount an employee is required to be withheld out of their salary and is in turn matched by their employer. Medicare taxes, FICA and federal withholding are all reported and paid concurrently. However, unlike FICA taxes, which are only assessed up to a specified annual amount, Medicare taxes are assessed on all of one’s earned income (W-2 wages) regardless of the amount. Medicare monies are then used to pay for medical expenses for those who qualify.
IRS Form 940: An annual report for FUTA/Federal Unemployment. These taxes are paid based upon the first $7000 of an employee’s salary and are assessed at a rate of .007 up to a maximum of $56 per employee/per year.
For those operating in other states you will want to contact the varying local authorities to ensure that you are aware of local tax laws. Please be advised that certain cities also have payroll taxes that should be assessed against wages.
Please note you should file all of the reports by their due date (I suggest filing as soon as you receive especially if you know you will have no payroll) as both the IRS and your state will assess a penalty for late filing. If you have no payroll you will still need to file these reports marking the reports zero in the amounts being sure to keep a file for your records.
Due to the complexity of payroll reports and payments, I suggest that all business owners, regardless of the number of employees, retain a payroll service to prepare and maintain your paychecks, payroll reports, and to ensure continued compliance with local state and other ordinances relative to your payroll requirements. In this way you will aptly delegate one of the more cumbersome aspects of your business to someone who handles payroll each and every day.
Navigating through this administrative nightmare is a critical hurdle that all business owners must overcome. By calling us today we can assist in making you aware of the myriad of the tax laws affecting your payroll responsibilities as well as to refer qualified payroll representatives to handle and address these issues for you allowing you to focus on what you do best; run your business.
EFTPS. Electronic Federal Tax Payment System. Because of the many varying reporting formats, forms, methods and electronic reporting requirements, it is most advisable that all employers (regardless of size) utilize and retain a payroll service to handle all of its payroll needs. Payroll companies will not only process the actual paychecks themselves, but also prepare the required payroll reports and make the needed tax payments. This process is relatively seamless as most all payroll companies debit your account for the required payroll taxes at the time of payroll check processing. Payroll companies also have the ability to make electronic payments directly to an employee’s account thereby saving time and money. EFTPS is the procedure and process that the IRS specifies employers to use to report and pay all payroll taxes. EFTPS is where employers report and pay IRS monies electronically and via magnetic media.
To read more about business issues affecting your new Georgia Business visit http://www.hiscpa.com/checklist.htm
To Get Help in Choosing the Right Entity Type for your Business visit http://www.hiscpa.com/article2.html
Understanding Corporate Income Tax Returns and Year-end Tax Filings for Business Owners http://www.hiscpa.com/business-tax-returns.html
To learn if your workers are employees or independent contractors http://www.hiscpa.com/employee-checklist.html
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