Business
United States — Business: Payroll
US employers withhold income, Social Security and Medicare tax from pay and report quarterly on Form 941, with FUTA reported separately on Form 940.
Why this matters
Understanding and complying with payroll regulations is crucial for employers to avoid costly fines and penalties.
Key facts
- Employers who withhold income, Social Security or Medicare tax generally file Form 941 each quarter, even when no tax is owed unless a final return was filed or Form 944 applies.
- The employee Social Security rate is 6.2% and Medicare 1.45% (7.65% combined), with the employer also paying a matching share per Publication 15.
- FUTA is reported on Form 940 and is paid only by the employer, not withheld from wages.
- Employers submit Form W-2 to the Social Security Administration and give a copy to each employee.
- An employer who outsources payroll to a third party remains responsible for the taxes.
Steps
- Registering for Federal and State Tax Ids — Employers must register for a federal Employer Identification Number (EIN) and obtain any necessary state tax ids to operate a business in the United States.
- Setting Up Payroll — Employers must set up a payroll system to accurately track employee hours, wages, and taxes withheld. This may involve selecting a payroll software or working with a third-party payroll service provider.
- Complying with Federal and State Reporting Requirements — Employers must comply with various reporting requirements, including submitting Form W-2 to the IRS and filing state and local tax returns as required.