Introduction

Processing payroll (employment) taxes and forms is a major activity of small businesses with employees. It’s important that payroll taxes and forms are processed efficiently, accurately, and productively to ensure the payroll taxes and forms you provide to external users, such as federal and state tax agencies, are timely and reliable.

This chapter provides step-by-step guidance for processing payroll taxes and quarterly forms.

The guidance in the chapter is useful to bookkeepers as well as personnel involved in payroll activities. The chapter helps bookkeepers process payroll taxes and quarterly forms efficiently, accurately, and productively and provides newly hired or cross-trained employees guidance for processing payroll taxes and quarterly forms.

Accounting Process Automation

Accounting process automation automates routine payroll taxes and forms processing. Automation improves the speed, accuracy, and reliability of processing payroll taxes and forms.

This chapter uses accounting process automation when possible to efficiently and productively process payroll taxes and quarterly forms with QuickBooks.

Processing Payroll Taxes and Forms Tools

The following tools are needed to process payroll tax payments and quarterly forms:

• QuickBooks
• QuickBooks Payroll

Bookkeeper Tasks

Your processing payroll tax payments and quarterly forms tasks include:

1. Pay payroll taxes
2. File quarterly payroll tax forms
3. File Form 940 Employer's Annual Federal Unemployment (FUTA) Tax Return
4. File Form W-2 Annual Return of Withheld Federal Income Tax

Accountant Tasks

Your accountant’s processing payroll tax payments and quarterly forms tasks include:

1. Provide processing payroll tax payments and forms training
2. Support processing payroll tax payments and forms questions or problems
3. Review your payroll tax payments and forms.

What are Payroll Taxes?

Employers accumulate the following types of federal payroll taxes:

1. Employee’s federal income tax withheld (FITW)
2. Employee’s social security and Medicare FICA (Federal Insurance Contributions Act) taxes
3. Employee’s additional 0.9% Medicare tax withheld (if applicable)
4. Employer's share of FICA taxes
5. Employer's FUTA (Federal Unemployment Tax Act) taxes

To calculate the amount of income tax to withhold (FITW), the employer must have a properly completed Form W-4 on file for each employee. The employer uses information provided on the employee's Form W-4 to determine the amount of federal income tax to withhold, using one of several different methods. The most common methods are the wage bracket method and the percentage method.

The employer must withhold the employee's FICA taxes from the employee's taxable wages. The regular FICA tax is comprised of two components: (1) social security tax of 6.2%, and (2) Medicare tax of 1.45%. The employer must also pay a matching amount of these taxes. For 2020, the maximum employee wage base subject to the social security tax is $137,700. All Medicare wages are subject to the 1.45% tax.

Additionally, an employer must withhold an additional 0.9% Medicare tax compensation over $200,000 paid to an employee during a calendar year. There is not an employer match for this additional Medicare tax.

The Federal Unemployment Tax Act (FUTA), together with state unemployment systems, provides for unemployment compensation payments to workers who have lost their jobs. Most employers pay a federal and state unemployment tax. The FUTA wage base is $7,000, while state wage bases vary. Only the employer pays FUTA tax, which means no amount is withheld or collected from employees to pay the tax.

Employers annually file Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, to report FUTA tax on wages paid to employees.

Depending on the state where they reside, employers also withhold state payroll taxes. Some of the fifty states: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming don’t have state income tax. Employers may also be required to withhold city payroll taxes.

After the employer has withheld taxes on wages paid to employees, the employer must pay these amounts to the government by depositing them. This deposit responsibility is independent of the employer's obligation to file a quarterly or annual return with the IRS that accounts for the withheld taxes.

All employers generally are required to make payroll tax deposits electronically using the Electronic Federal Tax Payment System (EFTPS). An exception to the electronic deposit requirement is available to certain employers with a liability of less than $2,500 for a return period that pay their payroll taxes when filing the payroll tax return.

If a deposit is required to be made on a day that is not a business day, the deposit is considered timely if it is made by the close of the next business day. Business days include every calendar day other than Saturdays, Sundays, or legal holidays. For federal tax deposit purposes, the term legal holiday includes only those legal holidays in the District of Columbia. Statewide holidays that don’t coincide with a legal holiday in the District of Columbia are not considered a legal holiday for deposits due.

The timing and frequency of an employer's payroll tax deposits are determined annually, based on the employer's deposit history during a lookback period. For employers that file Form 941, Employer’s Quarterly Federal Tax Return, the lookback period for each calendar year is the 12-month period ending on the preceding June 30. For example, the 2020 lookback period for Form 941 filers began on July 1, 2018 and ended on June 30, 2019. For employers that file Form 944, Employer’s Annual Federal Tax Return, for the current year or that filed it for either of the previous two calendar years, the lookback period is the second preceding calendar year. For example, the 2020 lookback period for Form 944 filers is calendar year 2018.

An employer is either a monthly or semiweekly depositor for each calendar year, depending on the amount of payroll taxes accumulated during the lookback period. However, a special one-day rule applies to employers with $100,000 or more of accumulated payroll taxes.

An employer is a monthly depositor for the entire calendar year if the aggregate amount of payroll taxes reported for the lookback period is $50,000 or less. An employer is a semiweekly depositor for the entire calendar year if the aggregate amount of payroll taxes reported for the lookback period exceeds $50,000.

Monthly depositors must deposit payroll taxes accumulated during a calendar month by the 15th day of the following month. If the 15th day of the following month is not a business day, the taxes are deemed to have been timely deposited if deposited on the next business day. Business days include every calendar day other than Saturdays, Sundays, or legal holidays.

Semiweekly depositors must deposit accumulated payroll taxes by the following due dates:

• If your payroll is paid on a Saturday, Sunday, Monday, or Tuesday; your deposit date is on or before the following Friday
• If your payroll is paid on a Wednesday, Thursday, or Friday; your deposit date is on or before the following Wednesday

What are Quarterly Payroll Tax Forms?

Depending on the state the employer resides, employers generally file federal and state quarterly payroll forms.

IRS Form 941, Employer's Quarterly Federal Tax Return, is used to report:

1. Federal income tax withholding from wages, reported tips, supplemental unemployment compensation, and third party payments of sick pay (disability pay)
2. Social security and regular Medicare (FICA) taxes
3. Additional 0.9% Medicare taxes

Reportable wages include cash and non-cash compensation, certain dependent care assistance benefits, group-term life insurance in excess of $50,000 provided by the employer, certain employee expense reimbursements, and third party disability pay. Employers generally file Form 941 for each quarter, starting with the quarter in which the employer:

1. Is first required to withhold income tax
2. First pays wages subject to FICA tax

Form 941 is filed for each calendar quarter thereafter until a final Form 941 is filed (as indicated by marking the appropriate box in Part 3 and entering the date final wages were paid). A final Form 941 is filed if the employer determines that no future wages subject to FICA tax will be paid or no future federal income tax will be withheld. However, an employer who has only temporarily ceased paying wages should not file a final return but instead should continue filing.

Seasonal employers need not file for quarters when they have no tax liability because they paid no wages. To alert the IRS that the employer will not file a return for one or more quarters during the year, the employer should check the “Seasonal employer” box in Part 3 for every quarter that a return is filed.

If the employer checks the “Seasonal employer” box on each quarterly return filed, and if at least one Form 941 return is filed each year, the IRS generally will not inquire about unfiled returns. Otherwise, the IRS expects a return to be filed for each quarter.

Form 941 is due the last day of the calendar month following the end of each calendar quarter. If the due date falls on a Saturday, Sunday, or legal holiday, the return can be filed on the next business day. The IRS generally does not grant an extension for filing Form 941. However, Form 941 can be filed on or before the 10th day of the second calendar month following the end of the quarter, i.e., a 10-day extension is allowed beyond the normal due date, if timely deposits have been made in full payment of taxes due for the period. For example, a first quarter Form 941 can be filed by May 10 (instead of April 30) if all taxes were timely deposited.

The payroll taxes reported on Form 941 generally must be deposited by electronic funds transfer (EFT). However, when the amount due is less than a certain threshold, the taxes can be paid when the return is filed.

If the tax liability on line 12 of Form 941 for the current quarter is $2,500 or more and the tax liability on line 12 of Form 941 for the immediately preceding quarter was $2,500 or more, the taxes must be deposited by EFT, using EFTPS. Federal tax deposits cannot be made using credit or debit cards or electronic funds withdrawal (EFW).

Each employer that pays cash compensation to employees for which it incurs, or expects to incur, liability for FICA tax must keep records pertinent to those taxes available for IRS inspection. The records should be kept until the later of four years after the due date of the return, or the date of the payment of the tax to which the records relate.

Employers required to withhold income taxes must also keep records pertinent to those taxes available for IRS inspection.

Employers who withhold state payroll taxes generally file state quarterly payroll returns.

Form 940 Employer's Annual Federal Unemployment (FUTA) Tax Return

The Federal Unemployment Tax Act (FUTA), together with state unemployment systems, provides for unemployment compensation payments to workers who have lost their jobs. Most employers pay a federal and state unemployment tax. The FUTA wage base is $7,000, while state wage bases vary. Only the employer pays FUTA tax, which means no amount is withheld or collected from employees to pay the tax.

Employers annually file Form 940 Employer's Annual Federal Unemployment (FUTA) Tax Return to report FUTA tax on wages paid to employees. Form 940 must be mailed or filed electronically no later than January 31 of the year following the calendar year in which the taxes were withheld. However, if you deposited all FUTA tax when due, you have until February 10 to file. If the filing date falls on a Saturday, Sunday, or legal holiday, the Form W-2 may be filed on the next business day.

Every person meeting the definition of an employer under the FUTA statute for a calendar year must file Form 940 for that calendar year. The term person is broadly defined to include an individual; corporation; partnership; trust or estate; or other unincorporated organization, group, or entity. However, service performed by employees of an exempt Section 501(c)(3) organization is exempt employment for FUTA purposes, which means such organizations are not subject to FUTA tax and don’t have to file Form 940.

Different filing requirements apply for business employers, agricultural employers, and household employers. The following information summarizes when each of these employers must file Form 940.

• Business Employer – Paid wages of $1,500 or more in any calendar quarter for covered employment or employed one or more workers for some part of a day in each of any 20 or more different weeks, in the current or preceding year
• Farm Employer – Paid cash wages of $20,000 or more to farm workers in any calendar quarter or employed 10 or more farm workers for some part of a day (whether or not employed at the same time) in each of any 20 or more different weeks, in the current or preceding year
• Household Employer – Paid cash wages of $1,000 or more in any calendar quarter for household employment in the current or preceding year

Although employers file Form 940 annually, their FUTA tax liability is computed quarterly to determine whether a deposit of FUTA tax is required. If a deposit for a given quarter is required, it must be made by the last day of the following calendar month, e.g., April 30 for the first quarter ending March 31. This quarterly deposit schedule is mandatory—the monthly or semiweekly deposit rules applicable to withheld income and FICA taxes don’t apply to FUTA taxes.

Form W-2 Annual Return of Withheld Federal Income Tax

When preparing Form W-2, it can be difficult to determine the correct amount to report on the various line items. While the form is used to report routine items such as gross wages, social security wages, and federal withholding amounts, the employer also encounters additional reportable items such as taxable and nontaxable fringe benefits, sick pay (disability pay), and tip income. Further complicating the reporting process is the treatment of reimbursed employee business expenses. Inclusion of such reimbursements in Form W-2 income is required in some situations but not in others.

Employers annually prepare a Form W-2 (Wage and Tax Statement) for each employee, which reports the employee's wages and the amount of tax withheld. This statement is furnished to both the employee and the Social Security Administration (SSA). The amount of wages reported includes such items as cash wages, noncash compensation, dependent care assistance benefits, scholarships, the cost of employer-provided group-term life insurance, certain expense arrangements, disability pay paid by third parties, and tips.

Employers must furnish Form W-2 to each employee who performed services in the employer's trade or business when, during the calendar year, the employer:

1. Withheld income tax or FICA tax, regardless of the amount of wages
2. Would have withheld income tax if the employee had claimed no more than one withholding exemption on Form W-4 (Employee's Withholding Certificate)
3. Paid $600 or more in wages, even if income or FICA taxes were not withheld

Form W-2 is a six-part form. Copy A is for the SSA (Social Security Administration) and Copy B is provided to the employee, to be filed with the employee's federal income tax return (if filed on paper). Copies C and D are retained by the employee and employer, respectively. Copy 1 is sent to the employer's state or local tax department if required by that jurisdiction's filing requirements and Copy 2 is provided to the employee, who may need to file it with his or her state or local income tax return.

Copies B, C, and 2 of Form W-2 must be furnished to each employee no later than January 31 of the year following the calendar year in which the taxes were withheld. However, if an employee is terminated before the end of the year and the employee makes a written request for their Form W-2, the employer must furnish the Form W-2 within 30 days of the request, or if later, within 30 days after the last payment of wages. If the Form W-2 cannot be delivered to the employee, the employer must retain the form for four years. The employer is not required to retain the undeliverable employee copies if the forms can be produced electronically through April 15 of the fourth year from which they were issued.

Copy A of Form W-2 must be mailed to the SSA or filed electronically no later than January 31 of the year following the calendar year in which the taxes were withheld. If the filing date falls on a Saturday, Sunday, or legal holiday, the Form W-2 may be filed on the next business day. The paper forms are submitted with a single Form W-3 (Transmittal of Wage and Tax Statements). Paper Forms W-2 can be sent to the SSA by mail or a private delivery service. The address to use for each method is available at www.ssa.gov/employer and selecting the “Paper Forms W-2 & Instructions” link.

Note: Many states have the same filing deadlines as the IRS. However, several states do have different filing dates. You should check state websites to be sure of state filing deadlines.

Payroll Tax Page

The Payroll Tax page is where you can view upcoming and historical payroll tax payments and filings. To navigate to the Payroll Tax page, select Taxes from the left menu, then select Payroll Tax.

The Payroll Tax page has two tabs: Payments and Filings.

The Payments tab displays a table listing upcoming taxes, which consists of the following columns:

1. Tax Type - Shows the type of payroll tax due with a drop-down arrow showing payment details
2. Payment status – Shows the current status of the payroll tax payment
3. Amount - Shows the amount of the payroll tax to be paid
4. Due date - Shows the date the payroll tax payment is due
5. Payment method – Shows the payment method being used to make the payroll tax payment, as well as the date the withdrawal will take place
6. Actions - Shows the payroll tax payment options available

The Filings tab displays a table listing upcoming filings, which consists of the following columns:

1. Form Type - Shows the type of payroll tax form
2. Filing status – Shows the current status of the payroll tax form
3. Period - Shows the period to which the payroll tax form applies
4. Due - Shows the date the payroll tax form is due, and the date that it was filed (if applicable)
5. Actions - Shows the payroll tax form options available.

Auto Taxes and Forms

Once you set up payroll and process payroll, you will be able to utilize the QuickBooks Payroll Auto Taxes and Forms feature. This will automate the payment and filing of your payroll taxes and forms.  

To turn on Auto Taxes and Forms:

1. Select the Gear icon, then select Payroll Settings
2. Select the Pencil icon next to Taxes and Forms
3. Select the checkbox next to Automate taxes and forms
4. For When to pay, select Later to comply with the pay as late as possible, but within terms policy (see Bookkeeping with QuickBooks Online Guide)
5. Select Save, then Done

Pay Payroll Taxes

Frequency

As stated above, monthly depositors must deposit federal payroll taxes accumulated during a calendar month by the 15th day of the following month. Semiweekly depositors must deposit accumulated payroll taxes by the following Wednesday or Friday depending on the day your payroll is paid.

Your state determines the frequency of your state payroll tax deposits, if any.

When you set up your payroll settings, you set up:

1. Which payroll tax form you file with the IRS
2. How often the IRS requires you to pay federal taxes (federal deposit schedule)
3. Federal Employee Identification Number (EIN)
4. State Employer Account Number
5. State Unemployment Insurance (SUI) rate
6. How often your state requires you to pay state taxes (state deposit schedule)
7. E-pay your payroll tax payments

Automated tasks related to payroll tax are based on these settings.

Pay Payroll Taxes with Auto Taxes and Forms

Once you set up payroll and process payroll, QuickBooks Payroll can automatically pay your payroll taxes with automated taxes and forms.  

To turn on Auto Taxes and Forms:

1. Select the Gear icon, then select Payroll Settings
2. Select the Pencil icon next to Taxes and Forms
3. Select the checkbox next to Automate taxes and forms
4. For When to pay, select Later to comply with the pay as late as possible, but within terms policy (see Bookkeeping with QuickBooks Online Guide)
5. Select Save, then Done

Review Payroll Tax Payments

To view and review a payroll tax payment made by Auto Taxes and Forms:  

1. Select Taxes from the left menu, then select Payroll Tax
2. Select Tax payment history under Payment resources

The Tax Payments report will open, which lists recent tax payments.

3. From the drop-down menu, select the desired Date Range, then select Run Report
4. Select the desired payment from the Tax Payment column to view the details of the payment

File Quarterly Payroll Forms

Frequency

As previously stated, IRS Form 941 is filed quarterly. The 2020 quarterly due dates are April 30, July 31, November 2 (October 31, 2020 is a Saturday), and January 31.

Your state determines the frequency of your state payroll tax forms, if any.

When you set up your payroll settings, you set up:

1. Which payroll tax form you file with the IRS
2. Federal Employee Identification Number (EIN)
3. State Employer Account Number
4. Signature to sign your payroll tax returns
5. E-file your payroll tax returns

Automated tasks related to quarterly payroll forms are based on these settings.

File Quarterly Payroll Forms with Auto Taxes and Forms

Once you set up payroll, process payroll, and pay your payroll taxes, QuickBooks Payroll can automatically file your quarterly payroll forms with automated taxes and forms. See Auto Taxes and Forms from earlier in the chapter to make sure this setting is turned on.

View Quarterly Payroll Forms

The Archived Forms page is a digital collection of your company’s completed forms created since using QuickBooks and QuickBooks Payroll. The Archived Forms page lists:

1. Employee Setup Forms (if any)
2. Quarterly Tax Forms
3. Annual Tax Forms
4. Payment Coupons Forms
5. Monthly Tax Forms

Tax forms listed display:

1. Name
2. Description
3. Period (quarter, year)
4. Date archived
5. E-filing status
6. Link to the form

To view an archived form:

1. Select Taxes from the left menu, then Payroll Tax
2. Under Forms, select Archived forms and filings
3. Find the form and select the form link.

The archived form appears.

4. Select the View button to view or print the form

You need a PDF reader to view or print the form.

File Annual Payroll Forms

Frequency

As stated above, Form 940 must be filed electronically no later than January 31 of the year following the calendar year in which the taxes were withheld. If you deposited all FUTA tax when due, you have until February 10 to file. If the filing date falls on a Saturday, Sunday, or legal holiday, the Form W-2 may be filed on the next business day.

Form W-2s must be furnished to each employee and filed electronically no later than January 31 of the year following the calendar year in which the taxes were withheld. If an employee is terminated before the end of the year and the employee makes a written request for their Form W-2, the employer must furnish the Form W-2 within 30 days of the request, or if later, within 30 days after the last payment of wages.

File Annual Payroll Forms with Auto Taxes and Forms

Once you set up payroll, process payroll, pay your payroll taxes, and file your quarterly payroll forms, QuickBooks Payroll can automatically file your annual payroll forms (Form 940 Employer’s Annual Federal Unemployment Tax Return and Form W-2 Annual Return of Withheld Federal Income Tax) with automated taxes and forms. See Auto Taxes and Forms from earlier in the chapter to make sure this setting is turned on

When QuickBooks Payroll finishes submitting your W-2 forms, your employees can access their copy of the W-2 by logging in to their QuickBooks Workforce account. Intuit will also automatically mail a printed W-2 for each employee starting January 20.  

QuickBooks Payroll emails you to inform you that: (1) the form has been submitted and (2) the form has been accepted or rejected. You can also check the status of your filing on the form’s page.

Print Copies of W-2s

After W-2 forms are submitted, you will want to print Copy D of each W-2 to file away for your records. You may also need to reprint copies for employees in certain circumstances.

To print copies of Form W-2:

1. Select Taxes from the left menu, then Payroll Tax
2. Under Forms, select Archived forms and filings
3. Find and select Employer Copies: Form W-2 (W-2, Copies A & D) to print Copy D, or Employee Copies: Form W-2 (W-2, Copies B, C & 2) to print employee copies

The archived form appears.

4. Select the View button to view or print the form

Note: If you reprint for an employee who has not received the original W-2, write “Reissued Statement” an the top and with a copy of the W-2 instructions.