Photo by Kelly SikkemaOriginally Posted On: https://ngpayroll.com/payroll-101-calculating-payroll-liabilities/payroll-solutions-for-small-business/
Are you interested in calculating payroll your liabilities? Well, that can be quite a daunting activity, but that’s only if you don’t know what you’re doing.
On-premise, tax liabilities come in a variety of forms, which means it can be hard to keep track of them all. Not to mention, ensuring that your company is tax compliant.
In this article, we will cover everything you need to know about payroll tax. So that you can make an educated decision when it comes to calculate the liabilities or outsource the task to someone else.
Whenever you’re ready to go from complete unknowing towards crystal clarity, keep reading.
Payroll Tax Liabilities
Payroll tax liabilities include state, federal, and local income tax withheld from employee salaries, wages, and bonuses – but not yet remitted.
They also include unremitted Medicare and Social Security taxes that had to be withheld, including the matching of these taxes by the company.
State and federal unemployment taxes that have not been remitted are part of payroll tax liabilities as well. Your state can elaborate upon the rate applicable to your company and the wages.
For instance, it can be 5% on the first $10000 in annual salaries and wages. The after credit federal rate is 0.6% on the $7000 of first annual salaries and wages.
Not to mention, you might have payroll liabilities that are related to health insurance, worker’s compensation insurance, pensions, vacations, 401Ks, and much more.
Payroll Taxes Paid by Employees
Payroll tax liabilities paid by employees are Medicare tax, Social Security tax, and state/local income tax withholdings.
The first is set at 1.45% of the wages. It’s applied to all salaries because there is no cap.
The second is set at 6.2% of the wages. It’s also limited at an inflation-adjusted quantity of their wages, it increases each year.
The third is not really a tax, but an advance to the government upon income tax that employees must calculate after the end of the tax year.
Payroll Taxes Paid By The Employer
Payroll tax liabilities paid by the employer are Medicare tax, Social Security tax, and unemployment tax.
The first is the same as what the employees paid, the same goes for the second.
The third tax can be substantial, based on enterprise layoff history. A history of regular layoffs can contribute to a significant state tax. A portion of this tax is paid to the state and a smaller quantity to the federal government.
Also, the county or city in which the company operates or the employee resides will charge some tax. For instance, a city can charge a head tax for each person who is employed within the limits of the city.
Outsourced Payroll
When payroll is outsourced, the provider calculates these taxes and remits them to the employer. Thus, eliminating the workload of the employer in regards to the calculations necessary for these liabilities.
Payroll Tax Changes Over Time
Aggregated tax rates that employers pay are known to decide over the course of the year, since taxes are capped at a specific amount, and they do not apply to compensation that is earned above the limit.
Employees with greater compensation will pay a lower tax rate on their earnings, which is reflected by the matched taxes that the employer will have to pay.
Form 941
As the employer, you are required to deposit employment taxes that are reported on the quarterly federal tax return Form 941, and the annual federal tax return Form 944.
Both forms report tax withheld from employees, along with the employee’s and employers’ shares of Medicare and Social Security tax. The amount of taxes reported on these forms determines which deposit schedule is used, semiweekly or monthly.
These terms do not refer to how often your business has to pay employees or even how you need to make the deposits. They simply identify the set of deposit rules that you have to follow when the tax liability arises. The deposit rules are based on the dates when the wages have been paid, not on when the liabilities have accrued for accounting.
If you need to file Form 941 and your tax liability for the current or preceding quarter is under $2500, you can pay the tax for the current quarter with the timely filed return, instead of deposits. But that’s only as long you don’t incur $100000 deposit obligations during the quarter.
If you need to file Form 944 and your tax liability for the entire year is under $2500, you can pay the tax for the year with a timely filed return instead of deposits.
Employers below the $2500 limit who are not required to make deposits can choose to pay taxes shown due on the forms when they file them.
Unless you are eligible to make payments with your return, you should deposit your taxes. If you file Form 941 and you are not sure about your tax liability for the quarter, make deposits using monthly or semiweekly rules so you don’t become a victim of failure-to-deposit penalty.
Tax Reporting Due Dates
All companies oblige to the same tax reporting due dates. Depending on the reporting due date, different tax return forms must be filed.
For the tax reporting due date of January 31, you should file:
- Form 940
- Form 943
- Form 945
- Copy A of all W-2s and W-3s
- Copy A of Form 1099 and Form 1096
For the tax reporting due date of February 28, you should file:
- Copy A of Form 1099
- Form 1096
- Form 8026
For the tax reporting due date of March 31, you should file:
- Form 1099
- Form 8027
For the tax reporting due date of April 30, July 31, January 31, October 31, you should file:
- Form 931.
If you timely deposited all tax, you have 10 more calendar days to file this return.
In general, you need to deposit federal income tax withheld, as well as both the employee and employer Medicare and Social Security taxes. There are two schedules mentioned earlier, semi-weekly and monthly.
Before the beginning of each year, you need to determine which you need to use.
Payroll Liabilities Explained
Now that you know everything you need to know about payroll liabilities, you are well on your way to ensure that you optimize your tax situation to the best of your ability. As long as you understand your tax schedule, your liabilities and deposit your taxes, you will ensure that you avoid all troubles.
If you’re interested in payroll services, get in touch with us and we will happily accommodate your needs.
