Payroll is a common source of headaches for new business owners. Learn what it takes to run payroll and see how QuickBooks payroll services can help.
Payroll
Setting up payroll for the first time: A guide for new employers
If you're going to handle payroll yourself, here are the very basics you'll need to know.
Set a payroll schedule
Determine when you'll pay your employees—weekly, bi-weekly, twice a month, or monthly. Employees are usually paid several days after a pay period ends to allow time to calculate hours and withholdings.
Most small business customers who use QuickBooks pay their employees weekly.
Check with your state labor agency about which pay periods and/or pay days you can use, as laws vary from state to state.
Pro Tip
Setting a pay day will help you determine what needs to be reported on Form 941. If you're handling things on your own, you can e-file the 941 on the IRS website.
Determine withholdings
Give employees Form W-4 upon hiring to determine how much federal income tax you need to withhold from their paychecks. This is typically filled out on a new hire's first day and updated whenever an employee's significant life event would change their withholdings (e.g., marriage, divorce, has kids, etc.). Each state has its own withholding form, as well, and your employee will need to fill out a W-4 specific to your state. You can download those forms from the Bureau of Labor Statistics.
Pro Tip
Keep employee W-4 forms in a clearly labeled file that is stored in a secure spot, in case the IRS asks for them later.
Social Security taxes
Ensure your organization and employees are contributing to Social Security taxes each pay period.
Withhold 6.2% (as of 2017) from the employee's wages each pay period, and your company will need to pay an additional 6.2% (equaling a total of 12.4%) toward Social Security taxes. For 2017, the tax applies to the first $127,200 you pay to each employee during the year.
Medicare taxes
In addition to recurring Social Security taxes, your company and your employee will need to contribute to Medicare taxes.
Employee makes
<$200,000 per year
Withhold
1.45%
of employee's wages
Pay 1.45% in taxes
Employee makes
>$200,000 per year
Withhold
1.54%
of employee's wages
Pay 1.45% in taxes
How and when to deposit Social Security and Medicare taxes
Pay taxes via the EFTPS, or Electronic Federal Tax Payment System service (free). Instructions and details on enrollment for new employers can be found on page 28 of IRS Publication 15.
Deposit monthly or semiweekly when paying employee/employer federal income, Social Security, and Medicare taxes. Before the start of each year, find out which deposit schedule is right for your type of business.
QuickBooks defaults new employers to the monthly deposit schedule. If you have additional questions about deposit schedules, you can review IRS Publication 15.
Pro Tip
Keep tabs on what's due and when. The IRS provides a detailed breakdown of all federal employment tax due dates.
*Some state and local agencies might have different deposit schedule rules. Be sure to check if this applies to your business.
Pay the FUTA tax
The Federal Unemployment Tax, along with state unemployment programs, provides unemployment compensation to employees who have lost their jobs.
For 2017, the FUTA tax rate is 6% of the first $7,000 paid to each employee. Many businesses, however, can take advantage of a 5.4% credit if they're located in a credit reduction state.
Check with your state unemployment agency to learn if there is an additional state tax and if you qualify for the credit.
How and when to deposit FUTA tax
Deposit at the end of each quarter, if liability is $500 or more via the EFT. Specific due dates for each quarter can be found on page 36 of the IRS Publication 15.
Multiply the amount of taxable wages paid to all employees during the quarter by 0.06 (2017 rate) to figure out your FUTA tax liability. After an employee reaches $7,000 in taxable wages, you won't need to pay until the first quarter of the following year.
Assume, for example, that your total wages for the first quarter of 2017 are $21,000. The $21,000 is the first $7,000 of payroll you paid to three different employees. Your FUTA tax liability is ($21,000 X 0.06 = $1,260), and your FUTA obligation is fulfilled for those employees in 2017.
*If you do the above calculation and your FUTA tax liability comes out to $500 or less, you don't need to deposit the tax until you reach the $500 threshold.
Pro Tip
Pay state unemployment taxes (SUTA) on time—doing so can reduce your federal liability to as little as 0.6%, regardless of your state's tax rate. Check with your state to see if a tax credit is available.
Know your penalties
Stay accurate and on time when making any sort of tax deposit/payment, or you can face some pretty stiff penalties. Learn more about those in IRS Publication 15.
Keep the following on file during and after the onboarding process for each employee:
Form W-4: It helps employee/employer determine how much money to withhold from each paycheck for federal taxes.
Employment Eligibility Verification form: It's used to verify the identity and employment authorization of individuals hired for employment in the United States.
To fill this out, the employee will need to bring a few certified types of identification. Accepted types are listed on page 3 of the I-9 form.
New Hire forms: Employers need to file this with their state within 20 days of hiring any employees.
Fast Start Direct Deposit form: Get authorization to transfer paychecks directly into an employee's bank account—with their approval.
Emergency Information form: In case of emergency, this form gives you contact information for the employee's chosen emergency contact.
Self-Identification of Disability form: This voluntary form is meant to assist the Federal government in collecting data used toward the improvement of their programs, which aim to help those with disabilities in the workplace.
Why do payroll the hard way when you can do it in QuickBooks? See how.
1. Pay employees
Enter hours, and get instant paycheck calculations. Then print checks yourself, or use free direct deposit.
2. Get set up for e-pay
Go through the e-services setup in our system.
*For states where e-pay isn't available, we'll give you the form to mail to your tax agency, or we'll give you step-by-step instructions on how to complete the forms the agencies mail to you.
3. Pay payroll taxes
We calculate payroll taxes and remind you when to pay federal taxes.
4. File payroll tax forms
We help you file faster, by automatically filling in some federal and state payroll tax forms for you and by giving you comprehensive guidance along the way. Just click to e-file your forms in most states.
Your time is too valuable to worry about payroll. Focus on growing your business and let us handle the rest.
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