The government requires that all employers file and pay their taxes in a timely manner. This includes making federal tax deposits and filing an annual 940 or 940EZ, filing quarterly 941 forms, filing annual 945 forms, and filing annual W-2 wage and tax statements for each employee. In addition to federal reporting requirements, employers will need to file and pay taxes at the state and local level, depending on the location of their business.
Paying federal taxes
Unless a company qualifies under the small business exception rule, they will be required to make their federal deposits electronically. Electronic payments can be made by
- Signing up for the Treasury Department’s free Electronic Federal Tax Payment System which can be accessed over the phone or online.
- Using ACH payments through your bank or financial institution.
- Having your tax professional or payroll service make payments on your behalf.
It is important to be aware of both legal holidays and business days when it comes to making payments. When the payment due date falls on a weekend, you will have until the close of the next business day to complete your deposit. When the due date falls on a legal holiday, there will be no extension, and payments will need to be completed before the holiday date.
If your company is classified as a small business and has a federal tax liability of less than $2,500 per quarter, electronic payments are not required. A check can be sent along with quarterly returns, but the payment must be received by the date it is due.
Filing federal and FICA taxes
The schedule for filing and paying federal and FICA taxes will be dependent on the size of your company’s tax liability. Towards the end of the current year, the IRS will inform you of the company filing requirements you need to follow. These requirements will be filed:
- Semi-weekly: Large companies may be required to make their payments on a semi-weekly basis. In this payment structure, wages that were paid on Wednesday, Thursday, or Friday, will need to have the taxes withheld paid by the following Wednesday. Wages that are paid on Saturday, Sunday, Monday, or Tuesday will need to have the taxes paid on the following Friday.
- Monthly: Companies that have over $2,500 annually in tax liability may qualify for monthly payments which will need to be submitted on the 15th day of the month following the withholding period.
- Quarterly: Many small businesses will qualify for quarterly payments if the tax liability is less that $2,500 annually. You will be required to submit a 941 with your tax payment.
- Annually: Some small businesses will be able to file one form 944 annual return and submit their tax payment along with it. The IRS does require that a business opt-in for this option, and to be eligible, your company must have an annual liability less than $1,000 for the year, not be an agricultural employer, and not be a household employer.
Determining whether your company qualifies for monthly or semi-weekly deposits
All companies with more than a $2,500 annual tax liability will need to pay their federal and FICA taxes semi-weekly or monthly, with the payment schedule for your company being determined by a specified look-back period. The look-back period will be comprised of a four-quarter period that ends on June 30 of the previous year. Companies who had a tax liability of less than $50,000 during that period, will be allowed to file and pay on a monthly basis. If higher, then a semi-weekly basis will be required. For new employers that do not have a look-back period available, payments will begin as monthly deposits.
Failing to withhold the proper amount of taxes, or failing to file and pay them in a timely manner can result in stiff fines and penalties from the IRS and other state tax agencies. You can avoid these problems by consulting Kundra Tax Law with questions regarding your tax withholding situation. If you are already facing an issue with the IRS, our experienced tax professionals can help as well. Contact us today to discuss your tax withholding questions and concerns.