So, you just started a new business. Or perhaps you have your business up and running and are ready to hire your first employee(s). Now come the questions. How do I pay my payroll taxes? When are they due? Which taxes do I even need to pay?
The paperwork and varying deadlines can be intimidating, but the tips below should help to clarify the process.
Employer Identification Number
First and foremost, you will need to obtain an Employer Identification Number (EIN) from the Internal Revenue Service. Think of the EIN as a Social Security number, but for the business. This number will be listed on both your income and payroll tax returns. If you have an existing business and are looking to initiate payroll, you probably already have this number. If you are just starting your business, you will need to get one not only for payroll tax purposes, but also to file income tax returns for your partnership or corporation (a sole proprietorship can be filed under the proprietors Social Security number, but an EIN can be obtained for this type of business as well). Obtaining an EIN is a relatively easy process. It is free, only takes a few minutes, and can be done online. The application will ask about your type of business, reason for applying, and the number of employees you expect to have. After completing the application, you will receive your EIN right away.
State Identification Number
Each state has different rules, but as most of our clients and all of our offices exist in Wisconsin, this will assume that the business in question is a Wisconsin business.
For Wisconsin, you must apply for a tax account number. As with the EIN, this is a free service and available online. This application is a bit more detailed than the one for the federal number. You will need to provide the names and Social Security numbers of each of the business owners, expected tax withholding amounts, and bank account information for the account from which you will be making your withholding deposits. Upon completion of the application, you will be assigned a Wisconsin Tax Account number as well as a filing frequency. This frequency will depend on how you filled out your application. It can be annual, quarterly, monthly, or semi-monthly, depending on how much withholding you expect to have. This frequency can change from year to year as determined by the State of Wisconsin based on your actual withholding amounts.
After your account number is established, you will need to set up a Wisconsin My Tax Account. Through this account, you will be able to make your withholding deposits (the deposit is reported on Form WT-6) and file your annual withholding reconciliation (more on that later).
State Unemployment Number
In addition to the state withholding number, you will need to set up an account with the Wisconsin Department of Workforce Development (DWD). Again, this can be done online. State Unemployment Tax (SUTA) is a bit different from other payroll taxes in that the rate is assigned by the state and can change from year to year based on the amount of unemployment claims (if any) made by employees.
The new employer rate in Wisconsin is currently 3.6% for most businesses (6.6% for construction businesses) and is applied to the first $14,000 of wages for each employee, annually. Both the rates and wage base are subject to change on a year to year basis. You will receive a notification from the DWD each year informing you of the upcoming year’s rate.
For each new employee you hire, you must have them fill out a Form W-4. This form will tell you how to withhold Federal income taxes from their payroll. It lists the employee’s name, address, Social Security number, and how many withholding allowances they wish to claim. You do not need to submit this form to the IRS, but you should keep it on file. Each employee must also complete form I-9. This is a document attesting to the fact that the employee is either a citizen of the United States or otherwise authorized to work within the United States. Like the W-4, this form does not need to be filed with any agency but does need to be retained with your records.
Wisconsin has its own withholding exemption form. This is known as Form WT-4, and it serves the same purpose as the Federal Form W-4. It lists employee information and the amount of withholding exemptions they claim. This form also does not need to be submitted to any agency, but retained with your records.
Finally, newly hired employees must be reported to the Wisconsin Department of Workforce Development. This can be done via their website or with a paper form. You can also submit the original form WT-4 as notification of a new hire. Just be sure to keep a copy for your records.
Once you have your payroll accounts set up, it is time to start filing your reports. Your Federal Form 941 and Wisconsin State Unemployment reports are due quarterly.
The purpose of Form 941 is to report the total quarterly wages paid, federal income taxes withheld, Social Security tax, and Medicare tax. Despite the report being due quarterly, the frequency of your deposits depends upon the amount of your payroll. If the total of your payroll for a given quarter is under $2,500, you can make a payment with the 941. Otherwise, you will be a monthly depositor. A deposit for the month’s payroll taxes will be due on the 15th day of the following month. Deposits must be made online through the government’s EFTPS system.
The Wisconsin State Unemployment tax report, Form UCT-101-E, will report each employee’s wages for the quarter. For the year 2013, only the first $14,000 of wages to each employee are taxable. This report can be done on paper and mailed in, or filed online using the same website used to set up the Wisconsin State Unemployment Account ID number. Payments can also be made either online or with a paper check, according to the preference of the employer.
Your Wisconsin withholding deposit may also be due quarterly, depending on your assigned filing frequency.
As the year comes to a close, the holidays have passed, winter is coming, and annual reports are due. With the exception of Form 940 – Employer’s Annual Federal Unemployment Tax Return, the purpose of the annual reports is largely to summarize the prior year’s wage activity.
The Federal Unemployment Tax (FUTA) report is similar to the quarterly Form UCT-101-E. Currently, the FUTA rate is 0.6% of the first $7,000 of wages for each employee. Unlike the SUTA tax, which is due each quarter, FUTA tax deposits are based on liability. Tax must be deposited as soon as the balance due reaches $500. If that does not occur before year end, the tax can be paid upon filing Form 940 at year end. If the balance due reaches $500 before then, it must be deposited using the EFTPS system, just like the Form 941 deposits.
The W-2 reports the annual wages, income tax withholding, and Social Security/Medicare taxes for each employee, as well as fringe benefits and retirement plan contributions. These forms must be submitted to the Social Security Administration by February 28th of the following year and to the employees by January 31st of the following year.
This form summarizes all of the information reported on all of the Forms W-2 and must be submitted to the Social Security Administration along with the Forms W-2 by February 28th of the following year.
This Wisconsin form is an annual reconciliation of all the state tax withholding for the year. It is due by January 31st of the following year and generally must be filed online using the My Tax Account website discussed above. Copies of the Forms W-2 must be submitted along with this form.
Is your head spinning yet? Many business owners find all these reports overwhelming, or just simply do not have the time to devote to preparing their own payroll tax returns. Fortunately there are other options. Many independent payroll services exist. For a fee, these service providers will compute your taxes, issue paychecks, and file the appropriate reports. Furthermore, accounting software providers offer payroll services at varying levels of employer involvement. Here at WKMR, we have many clients that utilize us to file quarterly and/or annual reports, make tax deposits, and issue W-2s. We would be happy to offer our services to you and your business, as well as offer consultation as to what is the best payroll service solution for you. Please feel free to contact me at (262) 567-6540 or firstname.lastname@example.org.