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Part 2 of 5: What are payroll taxes?
Part 3 of 5: Paying taxes
Part 4 of 5: Payroll tax reporting and forms
Part 5 of 5: Recap
Frequently asked questions
Introduction to payroll and taxes
This document explains some of the basics of payroll processing and your obligations as an employer. Intuit payroll services are designed to help you with the entire payroll process.
There are three main things you need to do that are related to payroll:
- Pay your employees: Calculate gross pay and taxes withheld each pay period.
- Pay taxes: Pay taxes withheld from employees' paychecks as well as the tax liabilities you incur as an employer to the appropriate government agencies, such as the IRS or your state's department of revenue.
File tax forms: Forms must be processed every quarter. Even if you've paid everything you owe, you still have to file tax forms that report your liabilities. If you have QuickBooks Desktop Payroll, availability of the forms depend on the type of your subscription:
- QuickBooks Desktop Payroll Basic - no tax forms available
- QuickBooks Desktop Payroll Standard - federal forms
- QuickBooks Desktop Payroll Enhanced - federal and state forms
Following is some common payroll terminology. For more details, see IRS Publication 15, Employer's Tax Guide.
Before your first payroll
- State W-4 (if applicable)
- Direct deposit authorization (if applicable)
Determine compensation types
You will need to set the hourly rate for each employee. Most employers set an hourly rate by assessing the state and federal minimum wage limits, the average market rate for the job/role, and experience and education of an employee.
Salary wages are set amounts and the employee receives the same amount each paycheck. As a rule of thumb, determine the annual salary first, and then divide by the number of pay periods in the year to determine the salary amount for each paycheck. Salaried employee hours typically fluctuate, so there's no real way to determine their hours unless you're keeping track of their time through a time management system. If for any reason you need to determine their hourly rate, divide their annual salary by 2,080 (this amount is the average hours a person works in a year; 40 hours a week x 52 weeks = 2,080 hours).
Commission employees are paid by performance. Most often, these employees receive a percentage of their sales or are paid by number of products or services sold. Federal and state law require the employee to get paid at least the minimum wage, so if the employee's commission is low enough, they'll need to be paid and the difference to meet the minimum wage limits.
The minimum wage for tipped employees is much less than the minimum wage for hourly employees. This is because these employees receive tips as part of their overall compensation. Tips can either be collected through the paycheck if the tip is paid by a credit card, or can be collected directly from the employee if the tip is cash.
There are a variety of other ways to pay your employees. Be sure to work with your state, business, and/or accountant to determine what types of compensation are needed.
Overview of payroll taxes
- Social security and Medicare
- Federal and state unemployment
- Personal income tax (federal and state)
- Miscellaneous other state taxes
Summary of the most common payroll taxes:
||Tax rate||Who pays?||Wage cap|
6.2% ER (2013-2017)
|Employee and employer||
EE: 1.45-2.35% (2013-2018)
ER: 1.45% (2013-2017)
|Employee and employer||Unlimited|
|Personal income tax (PIT)||Varies based on projected annual income||Employee||Unlimited|
|Federal unemployment (FUTA)||0.6%||Employer||$7,000|
|State unemployment insurance (SUI)||Varies based on employer's experience rate||Employer in all states; some states have employee contribution||Varies by state|
Social security and Medicare
The tax rate (amount withheld) for social security is 6.2% and applies to both employees and employers. This is a tax with a wage cap, which means that the tax is calculated only up to a maximum dollar amount of wages per employee each year. For 2018, the wage cap for social security is $128,400.
The employee tax rate (amount withheld) for Medicare is 1.45% for most employees. The employee Medicare rate increases to 2.35% on wages over $200,000. The employer tax rate for Medicare tax is set at 1.45% regardless of wage amounts. There is no wage cap for Medicare tax, which means the tax is paid on all of the wages that the employee earns. (The exception is exempt wages see "Special Tax Exemptions" below.)
Form W-4: Reported by the employee
- Filing status: The marital status that dictates which tax table is used to calculate income tax withholding. For federal income taxes, four filing status options are available: single, married filing jointly, head of household, and married filing separately.
- Withholding allowances: Also called exemptions, withholding allowances reduce taxable income by a designated amount per allowance. The IRS updates allowance amounts periodically. Factors such as number of dependents influence how many allowances an employee can claim.
- Additional amount to be withheld: Amount that is added to the income tax calculated for each paycheck. It is in addition to the amount of income tax withholding that is based on the employee's filing status and withholding allowances. An employee working multiple jobs might choose to have an additional amount withheld to compensate for understatement of annualized wages (and therefore understatement of his real tax rate) by each employer.
Federal Unemployment Tax Act (FUTA)
State unemployment insurance (SUI)
Other payroll taxes
Special tax exemptions
If you have the QuickBooks Desktop Payroll subscription and have employees who are eligible for special tax exemptions, you can configure this when you are setting up the employees in your QuickBooks Desktop. Your accountant can help you determine whether you have employees in this category; however, most employees pay all payroll taxes.
Federal tax deposit schedules
- Wednesday, Thursday, and Friday
- Saturday, Sunday, Monday and Tuesday
Exceptions to deposit schedule rules
Next-day deposit rule: If you accrue $100,000, or more, in federal tax liability at any point during a deposit period, you must remit taxes on the next banking day. This can result from a single payroll, or it can result from multiple payrolls within a single deposit period (monthly or semiweekly). For example, if you are a monthly depositor and pay a one-time bonus to employees that results in more than $100,000 in liability on a single day, you must pay the amount due immediately. You also become a semiweekly depositor until your lookback liability falls below the $50,000 threshold, again.
Quarterly exception: If you owe less than $2,500 in federal taxes for a quarter, you can choose to pay when you file your taxes at the end of the quarter (instead of making deposits during the quarter). If you're not sure how much your business will grow, you should make more frequent deposits, because the IRS assesses penalties if you owe more than $2,500 at the end of a quarter and have not made tax deposits.
- Annual exception: If the IRS has notified you in writing that you are a 944 filer, and your total annual federal tax liability is less than $2500, you can make your federal tax deposits annually. The 944 filing status is for very small employers who typically pay $4000 or less in annual wages.
Paying FUTA and SUI taxes
- April 30 (for Q1)
- July 31 (for Q2)
- October 31 (for Q3)
- January 31 (for Q4)
State withholding schedules
- Form 941: Most employers file this tax form every quarter with the IRS. It compares federal payroll taxes owed with taxes paid during the quarter to determine whether your payments were timely and whether you have a balance due.
- Form 944: Employers who have received written notice from the IRS can file Form 944 annually instead of Form 941 each quarter. Like Form 941, it reports wages and calculates federal payroll tax liability. Most 944 filers also pay taxes once a year.
- Form 940: All employers who pay FUTA file this tax form at year end with the IRS. Like Form 941, it compares FUTA tax liability with FUTA tax payments to determine whether your deposits were timely and whether you have a balance due.
- Form W-2: All employers provide Form W-2 to each employee at year end as an earnings record for income tax filing purposes. You are also responsible for filing Form W-2 with the Social Security Administration.
Breakdown of a paycheck
Gross pay is the amount owed to the employee without any deductions or taxes taken out.
- For hourly employees: gross pay = hours x rate
- For salary or commission employees: gross = flat amount (this amount is usually determined by figuring out the annual salary and then dividing it by the number of pay dates in a year)
Employee-owed taxes are taken out of gross pay. These typically include federal income tax, Medicare, social security, and state income tax. As an employer, it's your responsibility to hold and pay these taxes on behalf of your employees. Employee-owed taxes come at no additional cost to you as an employer, as these amounts were already included in the expense for gross pay.
However, you are also liable for employer-owed taxes, which typically include federal and state unemployment, and your share of Medicare and social security. These are not included on a pay stub as these do not pertain to employees and they don't need to know about these expenses. You can find these amounts in your Tax Liability or Total Cost reports provided by Intuit payroll services. If you have the QuickBooks Desktop Payroll subscription, you can find these amounts under Pay Liabilities or Payroll Summary report in QuickBooks.
3. Deductions other than taxes
Typical deductions include health, vision, and dental insurance. These are mostly voluntary, but the employee could also have involuntary deductions, such as garnishments like child support.
4. Net pay
This is the employee's take home pay. At this point, all taxes and deductions have been taken out. The employee can cash their check to receive this amount, or if they're set up for direct deposit, this is the amount that will hit their bank account.
5. Pay period
This is the period of time the work was performed. Pay periods are typically weekly, every other week, or monthly.
6. Pay date
The pay date is the date the employee has their paycheck in their hands, or if they're set up for direct deposit, this is the date the funds will hit their account. The pay date is also the date that determines when tax amounts are due. Refer to the Constructive Receipt section above for more details about the importance of this date.
What to do after running payroll, what to do after every quarter, and what to do at year-end
|Event||After every payroll||Every month||Every quarter||At year-end|
|Pay federal income tax, Medicare, and social security||If you're a semi-weekly depositor, these taxes are due after every payroll||If you're a monthly depositor, these taxes are due by the 15th of the following month|
|Pay state income tax||If you're a semi-weekly depositor, these taxes are due after every payroll||If you're a monthly depositor, these taxes are due by the 15th of the following month|
|Pay state unemployment||State unemployment (SUI) taxes are due at the end of every quarter|
|Pay federal unemployment||Federal unemployment (FUTA) taxes must be paid at the end of the quarter once the liability for the year exceeds $500. If this threshold is never met, these taxes are due at the end of the year.||Federal unemployment (FUTA) taxes are due at the end of the year if the liability never reaches $500|
|File Form 941||File Form 941 at the end of every to reconcile your employee wages and federal taxes|
|File Form 944||If you are not a 941 filer, file Form 944 at the end of every to reconcile your employee wages and federal taxes|
|File state unemployment forms||File your state unemployment form with your SUI payment|
|File quarterly state income tax forms||File quarterly state forms at the end of every to reconcile your employee wages and state taxes|
|File Form W-2||File Form W-2 by the end of January|
|File annual state income tax forms||Refer to 5744 for state annual due dates|
|File Form 940||File Form 940 at the end of the year to reconcile FUTA|
Following are some of the most commonly asked questions we receive from new employers. If you have additional questions, please contact Payroll Support.
Do I need to register as an employer?
How do I know how much to withhold?
Is my contractor really an employee?
As the owner of a business, am I considered to be an employee?
What is workers' compensation insurance and do I need it?
|Federal EIN or EAN||A 9-digit number issued by the federal government that uniquely identifies an employer. A federal EIN is required on all forms that you (as the employer) file for an employee. Also known as an Employer Account Number or EAN.|
|Deposit schedule||Tax agencies define when employers must deposit payroll taxes. New employers typically are assigned to a less frequent schedule. The IRS, for example, assigns new employers to a monthly schedule. State and local agencies define their own schedules and set their own thresholds.|
|Federal Insurance Contributions Act (FICA)||The federal social security and Medicare tax law. These taxes are paid by both employee and employer and are all remitted to the federal government at the same time.|
|FUTA taxes||The federal unemployment tax (generally, 0.6% of gross wages if paid on time) paid by employers only; employees do not pay this tax.|
|Filing name||The name under which you file your state and federal tax returns. The filing name of a small business is whatever you specified when you applied for your federal EIN. The government sent you a letter containing both your filing name and your EIN. Be sure you enter your filing name in Intuit Online Payroll exactly the way it appears on this letter from the government. Household employers: Your filing name is not necessarily your legal name.|
|Form I-9||Federal Form I-9 verifies the eligibility of individuals for employment. Employers must complete and keep on file an I-9 form for each employee. (You can print Form I-9. Go to Taxes & Forms. Your employee should provide the documents needed to verify eligibility. You are required to keep your employees' completed I-9 forms for your records.|
|Medicare tax||Federal taxes for medical insurance. Currently, both employee and employer pay on all wages the employee earns.|
|Nonprofit 501(c)(3) corporations||Nonprofit corporations that qualify under the federal 501(c)(3) provision of the tax code are exempt from FUTA and can be exempt from income taxes. Nonprofit organizations might be able to choose a reimbursable status for SUI. For more information, see IRS Publication 557, Tax Exempt Status for Your Organization.|
|Personal income tax wages||All wages paid during the specified period that are subject to federal, state, or local personal income tax (PIT), even if no PIT was withheld (states might have other names or abbreviations for PIT, such as State Income Tax (SIT)).|
|Personal income tax withholding||A payroll tax for a federal, state, county, or city. Local agencies can require an employer to withhold PIT from a household employee's wages.|
|Social security tax||Federal taxes for old age, survivors, and disability insurance.|
|State disability insurance tax (SDI)||A state payroll tax withheld from your employees' wages to provide benefit payments in case they are not able to work as a result of a non-occupational illness or injury. States set SDI rates.|
|State unemployment insurance (SUI) tax||
A payroll tax used to pay benefits to workers who are unemployed and qualify for unemployment insurance benefits. Typically, a state has one rate for new employers and lower or higher rates for employers who have a track record for paying taxes and for claims. For example, the SUI tax rate for new employers in California is 3.4% for the first three years. In following years, the tax rate will change depending on
|Wage cap||Some taxes are paid only up to a specific amount of yearly wages. For example, in 2013, the Social Security wage cap was $113,700. FUTA taxes are paid only on the first $7,000 earned annually by each employee. Not all taxes are wage-capped, and wage caps vary from tax to tax. Intuit Online Payroll accounts for all wage caps when calculating taxes. Agencies reevaluate wage caps annually and send you a notice when the cap changes.|
|Form W-2||Form W-2 is a federal form completed by employers to show an employee's total income and withholding for the year. Intuit Online Payroll creates the W-2 form for you, and then you file it with various tax agencies. You must give W-2 forms to all employees including terminated employees.|
Form W-4 is a federal form completed by employees so the employer can withhold the correct FIT from the employee's paycheck.
We can provide you with W-4 forms.
Some states require the use of their own W-4 equivalent.