Payroll tax can be a confusing topic, especially when you consider the already-complex tax code changes every year (and sometimes even more frequently). Get the answers to your most pressing questions with the following need-to-know payroll FAQs.
1. What is payroll tax?
A: Payroll taxes are taxes based on a percentage of wages, salaries and other types of income paid to employees. Federal payroll taxes are used to fund unemployment programs (FUTA) as well as social security and Medicare (FICA). State and local payroll taxes also apply. Both employers and employees pay FICA (Federal Insurance Contribution Act) taxes. Employers deduct, or withhold, the employee portion and deposit it on the employees’ behalf. FUTA (Federal Unemployment Tax Act) taxes are paid exclusively by employers.
2. When are payroll taxes due?
A: January 31 is the payroll tax filing date for Form 940, which is the Employer’s Annual Federal Unemployment (FUTA) tax return. If you make all your FUTA tax deposits on time, you automatically get an additional ten days to file, which makes the deadline February 10. January 31 is also the deadline for Forms 943 (agricultural employees), 944 (Employer’s Annual Federal Tax Return) and 945 (Annual Return of Withheld Federal Income Tax). Copy A of all W-2’s, W-3’s, 1099’s and 1096’s must also be filed by January 31. If you’re filing by paper, February 28 is the deadline for Copy A of Form 1099 if you do not have entries in Box 7 for non-employee compensation. Form 8027 (return of tip income) is also due on this date. If you’re filing electronically, the due date for these forms is extended to March 31. Form 941 (Employer’s Quarterly Federal Tax Return) is due on the following dates (add ten days if you make your deposits on time):
- April 30
- July 31
- October 31
- January 31
Note that filing dates can differ from deposit dates. For example, even though you report FUTA taxes annually, FUTA payments must be made quarterly if you owe $500 or more for any quarter. They’re due on the last day of the month that follows the end of the quarter. Other employment tax deposits are due either monthly or semi-weekly, depending on which deposit schedule you use. Monthly deposits are due on the 15th of every month. Semi-weekly deposits are due each Wednesday for payments made the previous Wednesday, Thursday and Friday. They’re due each Friday for payments made the previous Saturday, Sunday, Monday or Tuesday.
3. How do I calculate payroll taxes?
A: On the federal level, the FICA tax is for social security and Medicare. Employers and employees must each pay 6.2% of employee income for social security and 1.45% for Medicare. That makes the combined FICA tax rate 7.65%. The FUTA tax is for unemployment. Employers are responsible for 100% of the tax. The FUTA tax rate is 6%, but most businesses qualify for the maximum tax credit of 5.4%, which effectively reduces the liability to 0.6%. Your total payroll tax liability is the sum of employer taxes due plus withheld taxes paid on behalf of your employees. The latter amount varies by employee depending on income, deductions and marital/filing status indicated on Form W-4. Two methods are used to determine the amount of employee withholdings: the percentage method and the wage bracket method. Many people find the wage bracket method easier to use. IRS Publication 15-T walks you through it. Keep in mind you’re also responsible for state and local taxes, which vary by location. Calculate them according your state and local tax codes.
4. What is certified payroll?
A: Certified payroll is how contractors and subcontractors comply with Davis-Beacon and Related Acts, which mandates that laborers employed under a federal contract must be paid prevailing wages and fringe benefits. It refers to the process contractors use to report employee income, benefits and other information on a weekly basis to the federal agency overseeing a given project. The report, typically made on Form WH-347, must be accompanied by a signed statement of compliance.
5. What is the deadline to mail out employee annual statements?
A: Statements must be postmarked or distributed by January 31, 2021, including W-2 and 1099 forms. Forms 1094-B, 1095-B, 1094-C and 1095-C, which all have to do with ACA (Affordable Care Act) reporting, should be postmarked or distributed by March 1, 2021.
6. What portion of an employer’s HSA is reported on the W-2?
A: Both the amount that is withheld from the employee and any employer contribution need to be reported on the W-2 in Box 12, Code W.
7. Are social security numbers that start with a “9” valid?
A: No. Numbers that start with a “9” are ITIN’s (Individual Taxpayer Identification Numbers). These are issued to individuals who are required to have a tax identification number but are not eligible for social security numbers. Examples include resident and nonresident aliens who are required to file U.S. tax returns. The IRS states that an ITIN does not authorize work in the U.S. or provide eligibility for social security benefits and earned income tax credits.
8. Do I need to report the cost of health insurance for W-2 purposes?
A: If you have paid 250 or more employees, you must report the entire cost of health insurance premiums on each employee’s W-2 (Box 12, Code DD). This number only represents the cost of medical insurance and does not include supplemental health, dental or vision.
9. What should I do with a W-2 that is returned to me by the U.S. Postal Service, indicating delivery failure due to an invalid address?
A: Don’t open it but keep the original postmark as proof you have attempted to deliver the W-2, which puts you in compliance with IRS regulations. You should keep any returned W-2’s on file in case an employee later requests a copy. It’s also a good idea to double-check the address; if it was mailed to the incorrect address, you can send a copy to the correct one. If the employee still works for you, you could also hand-deliver the W-2.
10. Does Deluxe Payroll supply 1099’s if I issue them on my own?
A: If you provide your own accounts-payable checks to your employees, you’ll need to issue your own 1099’s. You can purchase forms and complete LaserJet/inkjet compatible 1099 bundles with duplicate forms and windowed self-seal envelopes from CheckSimple. Have questions about payroll or thinking about outsourcing payroll and tax filing? Deluxe Payroll can help you meet your payroll tax obligations.
Editor's note: This blog post was deemed accurate at the time of publication and may not reflect recent changes related to payroll law. The information provided in this blog does not, and is not intended to, constitute legal or financial advice.