Every employer in the US is required to deposit employment taxes for their employees and report the taxes to the relevant official bodies. Employment taxes include the withholdings from employees’ pay cheques to cover federal taxes; as well as state and local taxes where applicable.

The reported taxes must also include the employees’ share of Medicare taxes and Social Security taxes as well as the employer’s share. As an employer, your payroll tax responsibilities are extensive.

In addition to calculating income tax withholding amounts, you need to file various forms and deposit the payroll taxes. If you fail to correctly withhold and deposit these taxes, you could end up paying significant penalty fees.

Penalties Employers May Face for Incorrectly Filed Taxes

You can use an online pay stub maker to help ensure you always provide the right payroll to your employees and withhold the correct amount of tax. However, if you incorrectly file taxes, you could end up paying some rather hefty penalties.

You can pay penalty fees and interest for things like depositing employment taxes late, misclassifying employees as contractors, processing payroll using the wrong state, keeping inaccurate or incomplete records, and miscalculating or failing to pay overtime wages.

Calculating Payroll Taxes

You calculate payroll taxes according to each individual employee’s Form W-4, which tells you all the information required to proceed. It states things like the employee’s marital status and whether additional withholding needs to be made in order to cover personal taxes that the employee may be entitled to.

How Often You Need to File Payroll Taxes

Each state has its own payroll tax return filing schedules, so check your state laws to know what forms you must fill in and how often you must file. But when it comes to federal taxes, you will usually file on an annual basis. However, the employer’s federal return Form 941 needs to be filed quarterly.

How Much to Withhold

The payroll tax amount you need to withhold needs to be calculated by yourself. The calculations are based on employees’ Form W-4. Although a revised Form W-4 came into circulation in 2020, existing employers can still calculate withholdings based on the old versions of the forms.

How to Submit Payroll Taxes

Once you have calculated payroll taxes, you can deposit them electronically via the Federal Electronic Tax Payment System, which is more commonly known as EFTPS. For state taxes, check with your particular state to determine how to deposit the taxes.

How to Handle Contractors

Contractors are not the same as employees, so you do not need to withhold payroll taxes for them. However, it is crucial you review the status of all workers to ensure you do not classify a contractor as an employee or vice versa.

Contractors pay self-employment tax on their net earnings from self-employment. But if a self-employed contractor also has wages from a job, those wages are coordinated with the self-employed tax so the wage-base ceiling can be applied correctly.

When such workers earn more than $600 in a year, you must file an annual information return, Form 1099-NEC with the IRS.