Payroll Taxes Explained for Small Business Owners

Payroll Taxes for Small Business Owners

Types of Payroll Taxes

Federal Income Tax Withholding

Withheld from employee paychecks based on W-4 information. Deposited with the IRS.

Social Security and Medicare (FICA)

• Social Security: 6.2% employee + 6.2% employer = 12.4% total (up to $176,100 wage base)
• Medicare: 1.45% employee + 1.45% employer = 2.9% total
• Additional 0.9% Medicare for employees earning over $200,000

Federal Unemployment Tax (FUTA)

• 6% on first $7,000 of wages per employee
• Reduced by up to 5.4% if state unemployment taxes paid on time

Payroll Tax Deposits

• Monthly depositor: Deposit by the 15th of the following month
• Semi-weekly depositor: Deposit within 1-2 business days of payroll
• Next-day rule: If you accumulate $100,000 or more in one day, deposit the next business day

Payroll Tax Returns

• Form 941: Quarterly payroll tax return
• Form 940: Annual FUTA return
• Form W-2: Annual wage and tax statement to employees
• Form W-3: Transmittal summary to SSA

Trust Fund Penalty

Failing to deposit withheld payroll taxes is a serious offense. The IRS can assess a 100% penalty against responsible parties personally.

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