How do I handle payroll taxes and deposits?
Every time you run payroll, you need to withhold federal income tax, Social Security tax (6.2%), and Medicare tax (1.45%) from each employee’s paycheck. As the employer, you then match the Social Security and Medicare amounts out of your own pocket. That match is your cost, not the employee’s. So for every dollar your employee pays in FICA taxes, you pay another dollar.
How much federal income tax to withhold depends on the employee’s W-4 form and their wages. Your payroll software or provider calculates this for you based on the information the employee submitted. Get a current W-4 from every employee when they start and whenever their situation changes.
Once you’ve withheld the taxes, you need to deposit them with the IRS. Your deposit schedule is either monthly or semi-weekly, and the IRS assigns this based on your lookback period. If you reported $50,000 or less in payroll taxes during the lookback period (the 12-month window ending the prior June 30), you deposit monthly by the 15th of the following month. If you reported more than $50,000, you deposit semi-weekly. New businesses are generally monthly depositors. All deposits must go through EFTPS, the IRS electronic payment system.
In Florida, you don’t withhold state income tax because there isn’t one. That’s one less layer compared to most states. But you do owe Florida Reemployment Tax, which is the state’s version of unemployment insurance. This gets filed quarterly with the Florida Department of Revenue, and the rate varies based on your industry and claims history. New employers receive an initial rate that adjusts over time.
On the federal side, you also owe FUTA (Federal Unemployment Tax) at 6% on the first $7,000 of each employee’s wages. Most employers get a credit of up to 5.4% for paying state unemployment, reducing the effective FUTA rate to 0.6%. FUTA gets deposited quarterly if you owe more than $500 and filed annually on Form 940.
Every quarter, you file Form 941 to report the federal income tax, Social Security, and Medicare taxes you withheld and deposited. This is due by the last day of the month following the quarter’s end. So Q1 (January through March) is due April 30. Getting these filed on time matters because the penalties for late payroll tax deposits and filings are some of the steepest the IRS imposes.
At year end, you issue W-2s to every employee by January 31 and file them with the Social Security Administration. If you paid any independent contractors $600 or more, those get 1099s instead.
The most common mistake small business owners make is treating withheld payroll taxes as available cash. That money belongs to the IRS the moment you withhold it. Spending it and planning to catch up later leads to penalties, interest, and trust fund recovery assessments where the IRS can hold you personally liable even if your business is an LLC or corporation.
If this feels like a lot to track, that’s because it is. A full-service payroll provider or your bookkeeper can handle the calculations, deposits, quarterly filings, and year-end forms so you don’t have to worry about missed deadlines. The cost of outsourcing payroll is almost always less than one penalty for a late deposit.
Setting up a system that handles this correctly from day one saves you from costly cleanup later. If you already have employees and aren’t sure your payroll taxes are current, a small business bookkeeping professional can review your records, identify any gaps, and get you back on track before the IRS notices.
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