Payroll Tax Returns – What Are They, and Who Needs to File Them?

Small business owners have many responsibilities when it comes to their employees, including payroll tax, tax payments, and other tax filing forms. One of the most important tasks is collecting and paying taxes on behalf of employees to file for the tax year to be in compliance with the IRS. In addition, whether you have household employees or are a seasonal employer, such as having farm employees, it’s necessary for business owners to have all of the correct tax forms filed in accordance with the due date every tax year.

In the United States, business owners report their employees’ wages and taxes owed by filing a tax return called Form 941.

In this article, we take a look at Form 941, why it’s so important, and how you can get more help if you have any questions as you prepare your employee’s payroll tax returns. We’ll also look at other payroll tax returns that you may encounter, so you can be prepared for the IRS this tax year, along with any income tax withholding, taxable wages, tax deposits, total taxes, tax payments, and tax liability.

Payroll Taxes – Background

Payroll taxes are the federal, state, and local taxes associated with an employee’s taxable compensation that an employer is responsible for remitting to the proper taxing authority. Here’s a look at the different types of payroll taxes you’ll encounter as a small business owner.

Income taxes

Employees owe income tax based on their wage or salary at the federal level, which is the federal income tax, and, if necessary, at the state and local levels. This income tax is withheld from the employee’s paycheck by the employer and paid to the respective taxing authority by the employer.

Social Security taxes – employee portion*

Employees pay Social Security taxes on 6.2% of their taxable income up to $168,600 in 2024. (This dollar amount is increased each year based on inflation.) The Social Security tax is officially called Old Age, Survivors, and Disability Insurance (OASDI). Social Security taxes are withheld from the employee’s paycheck by the employer and paid to the U.S. Treasury by the employer.

Social Security taxes – employer portion*

When an employer remits Social Security taxes withheld from an employee’s paycheck to the U.S. Treasury, the employer also makes a matching payment equal to the employee’s portion of Social Security taxes. For example, if an employee owes $1,500 in Social Security taxes, the employer must make a matching payment of $1,500 for a total of $3,000.

Medicare taxes – employee portion*

An employee pays Medicare taxes on 1.45% of their entire taxable income. Medicare taxes are withheld from the employee’s paycheck by the employer and paid to the U.S. Treasury by the employer.

Medicare taxes – employer portion*

Similar to Social Security taxes, an employer makes a matching payment equal to the employee’s portion of Medicare taxes.

Additional Medicare Tax

Employees pay an additional Medicare tax on 0.9% of their taxable income above an applicable threshold. An employer must withhold this Additional Medicare Tax from wages or salaries paid to an employee in excess of $200,000 during a calendar year without regard to that employee’s filing status or wages paid by another employer.

Federal Unemployment Taxes (FUTA)

The FUTA tax rate is 6.0% and applies to the first $7,000 paid to each employee as wages during the year.

State Unemployment Taxes (SUTA)

The SUTA tax is administered similarly to the FUTA tax but with differing tax rates and wage levels.

Read this article from the U.S. Small Business Administration’s website to learn more about the different types of payroll taxes your business might have to pay.

*NOTE: Social Security taxes and Medicare taxes are levied by the Federal Insurance Contribution Act (FICA) of 1935. Hence, you may hear payroll taxes, also referred to as FICA taxes.

Payroll tax returns and filing deadlines*

Here’s a look at the payroll tax returns that must be filed to report the different types of payroll taxes:

• Form 940. Annual FUTA tax return. The due date is the last day of January, following the end of the tax year.
• Form 941. A quarterly tax return that reports all federal withholdings, including the employer’s share of Social Security and Medicare taxes. The due date is by the last day of the month following the end of the quarter.

• Form 943. Similar to Form 941, except Form 943 reports all federal withholdings for agricultural employees. The due date is the last day of January, following the end of the tax year.
• Form 944. You can file Form 944 annually instead of Form 941 each quarter if your business has an annual payroll tax liability of $1,000 or less. The due date is the last day of January, following the end of the tax year.
• Form 945. Use this form to report income taxes withheld from non-payroll payments, such as pensions, gambling winnings, or other mandatory backup withholdings. The due date is the last day of January, following the end of the tax year, so it’s important for small business owners to stay prepared.

State forms and deadlines

State and local payroll tax return deadlines often, but not always, follow federal reporting due dates. Check with your jurisdiction about the types of tax returns and due dates for state and local taxes.

*NOTE: If a due date for filing a return or making a payment falls on a Saturday, Sunday, or legal holiday, you generally have until the end of the next business day to file or pay.

Form 941 In-Depth

Form 941 is the most common tax return used to report payroll taxes. Your business must file Form 941 once per calendar quarter. Here are the remaining 2023 and 2024 due dates:

• 2023 4th Quarter: Wednesday, January 31, 2024
• 2024 1st Quarter: Tuesday, April 30, 2024
• 2024 2nd Quarter: Wednesday, July 31, 2024
• 2024 3rd Quarter: Thursday, October 31, 2024
• 2024 4th Quarter: Friday, January 31, 2025

To prepare a Form 941, follow these steps:

1. Record total wages, tips, and other compensation from all your employees. This dollar amount shows up in Box 1 of Form W-2.
2. Record total income taxes withheld from all your employees. This dollar amount shows up in Box 2 of Form W-2.
3. Record total social security wages withheld from all your employees. This dollar amount shows up in Box 3 of Form W-2.
4. Record total social security taxes withheld from all your employees. This dollar amount shows up in Box 4 of Form W-2.
5. Record total Medicare wages withheld from all your employees. This dollar amount shows up in Box 5 of Form W-2.
6. Record total Medicare taxes withheld from all your employees. This dollar amount shows up in Box 6 of Form W-2.

NOTE: The total dollar amount of wages used to calculate income taxes, social security taxes, and Medicare taxes don’t have to be the same. It’s beyond the scope of this article, but various scenarios can cause these three different types of wages to be different.

Form 944 – For smaller businesses

For some businesses with small payrolls or small number of employees, you can instead file Form 944 once per year to report your employees’ wages and payroll taxes. To qualify for filing Form 944, your annual combined tax liability for social security, Medicare, and withheld federal income taxes must generally be $1,000 or less.

Preparing Form 944 follows the same steps as Form 941.

Form 940 – To report Federal unemployment taxes

Form 940 is used to report your annual Federal unemployment taxes, often referred to as FUTA taxes, after the Federal Unemployment Tax Act, which authorized the levy and collection of unemployment taxes.

Together with state unemployment tax systems, the unemployment tax provides funds for paying unemployment compensation to workers who have lost their jobs.

Most employers pay both a federal and a state unemployment tax. Only employers pay the FUTA tax, so be sure not to collect or deduct FUTA taxes from your employee’s wages.

Payroll deposits

The IRS really doesn’t want you holding on to your employees’ taxes for very long. You must deposit withheld payroll taxes with the IRS either once a month or once a week.

If you report taxes of $50,000 or less during a calendar year, you must make deposits once a month.

If you report taxes of more than $50,000 during a calendar year, you must deposit once a week.

Special rule: Regardless of whether you’re a monthly or weekly depositor, if you accumulate taxes of $100,000 or more on any one day, you must deposit the taxes by the next business day after you accumulate the $100,000.

How to file

Paper filing of tax returns is still available for qualified businesses. Still, new e-filing requirements that take effect in January 2024 will significantly limit the number of businesses that can use this option.

The new rules require a business or organization to e-file all tax and information returns if the total number of filed returns equals 10 or more.

The best way to electronically file your return is by working with your 1-800Accountant tax advisor. A professional tax preparer can ensure all information included on a return is correct and accurate and that the return gets e-filed on time.

Amended returns and refunds

You may need to file an amended payroll tax return for many reasons. One common reason is that a new tax break became available to small businesses, and the IRS permits you to file an amended payroll tax return to claim this tax break. It’s also possible that you simply overpaid payroll taxes because of an error or oversight.

Here are the steps to follow if you believe that you’re entitled to a tax refund:

1. Calculate the refund amount. It’s your responsibility to calculate the amount of the refund.
2. Complete Form 941-X. This is the revised form of Form 941 that must be filed if you’re seeking a refund.
3. Attach calculations. Include your calculation and any paperwork that documents your refund claim when filing a Form 941-X.
4. File Form 941-X. Now, it’s time to file the amended Form 941 and your corresponding paperwork.
5. Wait for confirmation. Don’t assume the IRS has processed your amended Form 941 until you either receive your refund or get a letter from the IRS saying your refund request was denied.

Get help for your payroll taxes

Payroll taxes can be complicated, as can other types of business taxes. Bookmark this overview of payroll taxes and Form 941 so you can refer to it in the future as you continue to become more familiar with all the different moving parts of processing your employees’ payroll.

By working with professional payroll tax specialists, you can have peace of mind with your payroll tax regardless of the number of employees. Tax preparers have a strong understanding of all of the IRS forms, tax payments, medicare taxes, tax credits, and other important tax forms that are vital for small business owners.

For more information on processing payroll for your employees and preparing Form 941 and other payroll tax returns and tax forms, please contact a 1-800Accountant payroll tax expert.