Reporting and Depositing Payroll Taxes

(5 of 6)

Reporting and Depositing Payroll Taxes

Employers can either directly report and deposit payroll taxes with federal, state, and local governments, or they can contract with a payroll company to handle this task. Generally, filings are handled electronically. The employer designates how much of each tax is to be withheld each pay period by each employee, and those funds are withheld from paychecks and electronically deposited on a periodic basis with the relevant federal, state, and local agencies.

Sending in payments

Companies can mail in payment or use the Electronic Federal Tax Payment System to deposit payments at any financial institution that is an authorized depository for federal taxes. There are two schedules for depositing Social Security, Medicare, and federal income taxes. Which schedule an employer must follow depends on how much in total tax withholdings they deposit in a year’s time. Employers with a larger withholding—more than $50,000 per year—must deposit withholdings on a semi-weekly basis, while those with less deposit on a monthly basis. Employers who fail to file or deposit less than their tax liability are subject to interest and penalties.

What happens if too little is withheld from your paycheck?

If you or your employer fails to have sufficient funds withheld from your paycheck, the IRS could hold you personally liable for the shortfall. Generally, there are penalties and interest for failing to have enough funds withheld from your check to either meet your tax liability or to pay enough to cover your previous year’s tax liability. You must also pay taxes on any bonuses, noncash gifts, and benefits such as life insurance that are subject to federal tax.