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The payroll process involves much more than just adding up an employee’s work hours and determining the amount of his or her paycheck for the period. You must also withhold payroll taxes along with any voluntary withholdings the employee authorizes such as premiums for health insurance. Additionally, the Internal Revenue Service (IRS) and state governments expect employers to make payroll tax deposits according to a set schedule and submit a report of the monies collected.

Understanding Payroll Taxes and Due Dates

At the federal level, you must withhold a percentage of each employee’s paycheck to cover his federal income tax, social security tax, and Medicare tax. Most employers must also pay into a federal workers’ compensation fund based on the total of the company’s gross revenue. You will also need to deduct and remit state income tax unless you do business in one of the seven states that does not collect it.

To determine due dates for payroll tax deposits, the IRS considers the gross Medicare and social security liability for each employer based on a 12-month rolling year that ends on June 30. The IRS refers to this as its look-back period.

Determining the Amount of Your Payroll Tax Deposits and When to Pay Them

Palmetto Payroll recommends that you determine the amount of your payroll tax deposits by reviewing Form 941, also called the Quarterly Wage and Tax Return, for each of the past four quarters. You should go to Line 10 titled Total Tax After Adjustments and add each of the four 941 forms together. This will give you an accurate amount to help you determine how much to pay for each of your payroll tax deposits for the rolling calendar year.

New employers who did not yet have employees during the IRS look-back period will make their payroll tax deposits once a month. Otherwise, you need to follow the guidelines that best describe your tax situation:

  • Employers with a tax obligation of less than $2,500 in a quarter can pay the amount due using Form 941. The IRS considers this a timely filed return.
  • Employers will make a monthly deposit if the total amount of the payroll tax obligation was less than $50,000 during the IRS look-back period.
  • Employers who owed more than $50,000 in payroll taxes during the look-back period will make their payroll tax deposit twice a month.  

You must make your monthly payroll tax deposit by the 15th day of the following month. Semi-weekly deposits can get a bit more complicated. We recommend meeting with a tax accountant to ensure that you complete them correctly. One last thing to know about payroll tax deposits is that you must make them electronically using the Electronic Federal Tax Payment System (EFTPS).

Let Us Handle Your Payroll Taxes

Paying employees the correct amount and on time is enough of a challenge. It can really become overwhelming when you need to determine and submit payroll taxes on top of that. Palmetto Payroll can assist you with both of these services along with numerous other payroll functions. Please contact us today to learn how we can simplify your life as a business owner.