Paying Payroll Taxes
by Cindy Blaum, CPA
As printed in the Traverse City Business News
Taxes withheld from employees pay are considered trust fund taxes and are due to the governmental agencies within a specified time period. Failure to pay these funds in a timely manner will result in penalty and interest charges. Having knowledge of the due dates and timely reporting and payment of taxes is crucial.
IRS Publication (Circular E) provides important information as to the timing of payment of federal taxes withheld from employees checks. Within this publication, you can find the deposit requirements for federal income tax withheld and both employer and employee social security and Medicare taxes.
There are two deposit schedules available for most employers, monthly or semi-monthly. Before the beginning of each calendar year, the employer must determine which schedule they must follow. This is determined by analyzing a lookback period as defined by the IRS. The lookback period begins July 1 and ends June 30. If the employer reports $50,000 or less of taxes in the lookback period, they are a monthly depositor. This requires them to pay trust fund taxes by the 15th of the month following the payroll month. If the employer reported more than $50,000 in the lookback period, then they are a semiweekly schedule depositor. The semimonthly depositor must deposit the trust fund taxes by the following Wednesday for payrolls paid on Wednesday, Thursday and/or Friday or by the following Friday for payrolls paid on Saturday, Sunday, Monday and/or Tuesday. Typically, when an employer moves from a monthly schedule to a semi-monthly scheduled employer based on the lookback period, they will receive a letter from the IRS notifying them of the change.
There are two methods of depositing employment taxes. The first method is electronic deposit using the Electronic Federal Tax Payment System (EFTPS). Employers are required to use EFTPS in 2007 if your deposits of depository taxes in 2005 were more than $200,000 or you were required to use EFTPS in 2006. If the employer is required to use EFTPS and fails to do so, they may be subject to a 10% penalty for an inappropriate method of deposit of taxes. Enrollment in the EFTPS program is automatic for new employers or is easily accomplished by established employers by going to the EFTPS website at www.eftps.gov.
The second method of payment of employment is using the Federal Tax Deposit coupon (Form 8109.) Mail or deliver the FTD coupon and a check covering the taxes due to an authorized depositary. These coupons may be obtained by calling 1-800-829-4933 – allow five to six weeks for delivery.
The State of Michigan has a separate set of regulations regarding payment of taxes deducted from employees. To determine the filing frequency, sales, use and withholding taxes must all be considered in total. If the total tax liability is greater than $3,600 for the calendar year, then the taxes must be paid monthly by the 20th of the monthly following. If the liability is between $750 and $3,600 then the tax is due on the 20th of the month following the quarter and if the tax is less than $750, it is due February 28th of the following year.
Payments to the State of Michigan may be made either with coupons provided by the State of Michigan and mailing them in, or the State of Michigan EFT program. If making payments using the EFT program, the payments must be made monthly.
Prompt payments of all payroll taxes are essential to any business and every attempt should be made to make timely payments to avoid costly penalty and interest charges.
Cindy Blaum, CPA, is a manager at Dennis, Gartland & Niergarth in Traverse City with expertise in small business accounting and financial services, professional office practices and Quickbooks. For more information, call (231) 946-1722 or visit www.dgncpa.com