How to Do Payroll & Payroll Tax Forms

by Natalie Grace, Demand Media

Wage compensation is a core payroll function, while payroll tax preparation is essentially an accounting task. As a small-business owner, you may have one qualified person perform both payroll and accounting or bookkeeping duties. Payroll processing and payroll tax filing are done separately.

Establish Payday

Before you start payroll processing, decide how often you will compensate your employees. Consult your state labor department for minimum payday laws that might apply to you. You might be required to pay weekly, biweekly, semimonthly or monthly. You may pay sooner than the required time but not later.

Payroll Software Option

To increase efficiency and accuracy, you may use payroll software to process your payroll. The software calculates wages and deductions based on the entered data. For example, you would enter payroll data for each employee that shows her hourly pay rate or salary, federal withholding conditions based on her W-4 forms and voluntary deductions such as health insurance and 401k contributions. You may also use a timekeeping system that allows you to import employees’ time worked into payroll software.

Manual Calculations

As an employer, you should know the basics of paycheck calculation. For example, to arrive at an employee’s regular wages, multiply his regular hourly pay rate by his hours worked for the week; regular hours are those 40 and below for the week. To arrive at his overtime wages, multiply his work hours above 40 by 1.5 times his regular pay rate, in keeping with federal law. To arrive at a salaried employee’s compensation for the pay period, divide his annual salary by the number of pay periods in the year.
To figure federal paycheck taxes, consult Internal Revenue Service Circular E, the Employer’s Tax Guide. To compute applicable state and local taxes, consult your state revenue agency for its procedures. Deduct voluntary deductions based on your company’s policy and any related laws.

Form 941

Employers typically report their federal payroll tax liabilities to the IRS each quarter on Form 941. On the form, you would include the number of employees you paid wages to for the reporting period, plus total wages paid, taxable wages, federal income tax withheld, Social Security and Medicare tax liabilities, total payments made for the quarter, any applicable adjustments and total balance due.
If you made your tax payments on a monthly basis, you would include your tax liability for each month on Page 2 of the 941. If you paid on a semiweekly basis, along with Form 941 you would complete Schedule B (Form 941) to indicate your tax liabilities for the reporting quarter. File your 941 by the last day of the month that comes after the end of the quarter. Note that small-business owners with a yearly tax liability of $1,000 or less might be allowed to file annually on Form 944, if the IRS gives written consent.

Additional Tax Filing

At the end of each year, you must complete a W-2 for each employee you paid wages to and withheld taxes for. On the W-2, include the employee’s taxable wages for federal income tax, Medicare tax, Social Security tax and applicable state and local taxes. You would also include the amounts withheld for each of those taxes. To report state income tax withholding, apply your state revenue agency’s guidelines. For example, in Maryland, employers are required to file monthly, quarterly, seasonally, yearly or on an accelerated basis; this depends on the amount of the withholding.
As an employer, you’re required to pay federal unemployment tax and state unemployment tax. Use Form 940 to file annual federal unemployment tax reports with the IRS. Apply your state unemployment insurance agency’s rules for filing wage reports; in many cases, quarterly filing is required.

About the Author


Suggest an Article Correction

Have Feedback?
