The IRS requires most businesses with employees to withhold and deposit federal income taxes, Social Security taxes, and Medicare taxes. In most cases, tax deposits are made periodically during the quarter so that by the end of the quarter, most or all of the taxes have been deposited. Here are answers to common questions small-business owners have regarding tax deposits.
How Often Do I File?
While deposit schedules can vary based on the amount of payroll tax paid in previous periods, new employers are generally classified as a monthly depositor — especially if they are in their first year of business. For a discussion on the different deposit schedules, see IRS Publication 15 (also called Circular E).
Being a monthly depositor means that payroll taxes during any particular month are generally deposited by the 15th day of the following month. The deposit should consist of taxes withheld from the employees' pay, as well as the employer's share of certain payroll taxes.
How Do I Know How Much to Withhold?
Before you can make a payroll tax deposit, you must first calculate the amount of payroll taxes to withhold from your employees' pay. To calculate your payroll tax withholding manually, you can use the withholding tables in Circular E to calculate the federal income tax to be withheld. Then calculate the Social Security and Medicare taxes; Social Security taxes are 6.2 percent of the employee's Social Security taxable wages, and Medicare taxes are 1.45 percent of the employee’s Medicare taxable wages, with additional 0.09 percent liability for employees earning over $200,000 a year.
After you know how much should be withheld from your employees' paychecks, you can then calculate the amount you’ll need to deposit. Simply add up all federal income tax withheld, Social Security tax withheld, and Medicare tax withheld from all employees during the month, and to this figure add your share of Social Security and Medicare taxes. The resulting amount is the required tax deposit.
Okay, I Know How Much I Owe. Now What?
After the deposit amount is computed, you will need to make the actual deposit. The IRS now requires employers to make their payroll tax deposits through EFTPS, or the Electronic Federal Tax Payment System. On the EFTPS website, register with your business and banking information. After you’re registered, you’ll be able to log in to the site and make your payroll deposits through electronic fund transfer.
If you do not have the time or do not want the burden of calculating and making payroll tax deposits, you can hire an accounting professional or payroll management company to calculate and pay taxes for you.