payroll tax payment and filing requirements

Employers are required to make federal payroll tax payments to the government, as well as filing the proper reporting and informational returns. Employers must also provide employees and contractors with W-2 and 1099 reports explaining the compensation paid and withholding amounts. There may be state requirements as well. The rules can be complex and penalties for noncompliance severe, which is why the administration of payroll tax responsibilities is often outsourced by small businesses.

Federal tax deposits must be made electronically

Federal tax deposits must be made electronically, unless the small business exception applies. There are four methods that an employer can use to electronically transmit tax payments:

Use the Treasury Department's free Electronic Federal Tax Payment System (EFTPS), either online or the voice response system.

Ask your financial institution to initiate an ACH Credit payment on your behalf.

Ask a trusted third party, such as a tax professional or payroll service, to make the payment for you.

In extraordinary circumstances, ask your financial institution to make a same-day tax wire payment for you.

Income and FICA tax return requirements

Most employers are required to file Form 941, Employer's Quarterly Federal Tax Return, to report both the federal income taxes you withheld and the FICA taxes you withheld and paid during a calendar quarter. (Employers who qualify for annual reporting/payment, file Form 944.) The deadline for filing Form 941 is the last day of the first month after a quarter ends. However, if you've been timely with each of your deposits during the quarter, you're entitled to an automatic 10-day extension. No other extensions are permitted for filing Form 941. If you close your business or otherwise permanently stop paying wages that subject you to payroll taxes, you can end your obligation to file quarterly returns. You do this by designating the return for the last quarter that you pay taxable wages as a "final" return, by checking a box at the top of the return.