Employer Tax Obligations
- Completion time About 20 minutes
Once you make that first hire, your small business officially becomes an 'employer' in the eyes of the IRS. That means you'll be taking on additional tax obligations when it comes to both paying and reporting your business taxes.
State Tax Obligations
The taxes you're responsible to your state government for will vary based on the type of business and the state your business is registered in. Businesses in every U.S. state are responsible for state workers' compensation insurance and unemployment insurance taxes. If you're operating in California, Hawaii, New Jersey, New York, Rhode Island, or Puerto Rico, you're also required to pay for temporary disability insurance.
For information specific to your state, check out the SBA's state tax obligation resource.
Federal Tax Obligations
Generally, all employers are responsible to the federal government for:
- Withholding federal income tax, Social Security, and Medicare taxes from employee paychecks
- Depositing and reporting income and employment taxes quarterly
- Paying and reporting federal unemployment (FUTA) tax
- Completing and delivering employee W-2 statements annually
Understanding your new tax obligations is the first step, but you'll also need to know how and when to deposit taxes and the ins and outs of reporting them, too.
Depositing your employment taxes on time is important. You'll be facing penalties of up to 15% for late deposits, so knowing how and when to pay is key.
MONTHLY VS. SEMI-WEEKLY
Deposits for social security, medicare, and other withheld taxes run on either of two schedules — monthly or semi-weekly. Which schedule you should follow depends on the amount of your tax liability during a designated “look back period” (usually the previous calendar year).
If your total tax liability during the look back is $50,000 or less, you’ll deposit monthly. More than $50,000 and you'll need to deposit semi-weekly. It's important to determine which schedule you should follow before the beginning of the calendar year, so you can ensure all payments are made on time.
For more specific information around deposit scheduling, you can reference IRS Publication 15: Employer's Tax Guide.
GENERAL DUE DATES
Once you've determined whether you need to follow the monthly or semi-weekly schedule, it's easy to figure out when your deposits will be due.
For monthly depositors, payments are due on the 15th of the following month. So, for example, deposits for taxes withheld in April must be made by May 15th. For semi-weekly depositors: if the payments are disbursed on Saturday-Tuesday, the deposit is due the following Friday. If payments are made on Wednesday-Friday, it's due the following Wednesday.
For more details, visit the IRS Employment Tax Due Dates page.
HOW TO PAY
Now that you know when to pay, how do you actually make the deposit? All tax deposits have to be made through the Electronic Federal Tax Payment System (EFTPS). Paying your deposit is the most pain-free part of the process — just enter your Employer ID Number (EIN) to log in and connect your bank account. Then you're all set to make payments whenever they're due.
Now that you've paid all of your employment taxes, it's time to report them. You're required to file reports on all federal income tax, social security & medicare tax, and federal unemployment tax deposited. You’ll also need to file a W-2 form for each employee.
It's helpful to note that if all of your payments have been made on time, you'll have an additional 10 days (after the dates noted below) to file forms 940, 941, 944, and 945.
FEDERAL INCOME, SOCIAL SECURITY, AND MEDICARE
Any employer who withheld federal income tax or social security and medicare tax is required to file Form 941: Employer's Quarterly Federal Tax Return. This form is filed for each quarter by the end of the following month. So your quarter 1 form is due by April 30th, quarter 2 by July 31st, and so on.
If you've received written notification from the IRS, you may need to file Form 944: Employer's Annual Federal Tax Return. Form 944 is due by January 31st for the previous year.
You'll also need to file Form 945: Annual Return of Withheld Federal Income Tax, which details any nonpayroll income tax that's been withheld. This is due by January 31st of the following year.
FEDERAL UNEMPLOYMENT TAX (FUTA)
Your FUTA tax deposits are reported with Form 940: Employer's Annual Federal Unemployment (FUTA) Tax Return. Only the employer pays FUTA tax, so this form will document only what you've deposited toward the federal unemployment tax. Form 940 is due by January 31st.
The W-2 form details wages, tips, commission, and any other compensation paid to an employee. You'll file one copy with the government, and another copy must be delivered to each employee. W-2 forms are due to the IRS by January 31st and to the Social Security Administration (SSA) by March 31st.
Keep Up With Tax Obligations
Bringing on full- or part-time employees means your business is really ready to grow. Stay on top of your tax and other obligations as an employer and your business will be on the right track.
- Hiring Your First Employee
- Helpful Tools to Organize Your Tax Documents
- Small Business Tax Form Selector
- A Guide to Your First Year of Business Taxes
- Tax Deductions for Small Business Owners
- Must-Know Changes for Small Business Owners (2016 Edition)