PAYROLL 101

Payroll taxes can be a very detailed and confusing part of owning a small business. This is a basic guideline to follow when beginning payroll for your small business.

1. Payroll Preparation –Before the first payroll is run, employers need to make sure that they have registered with the correct agencies and are ready to pay payroll taxes. Employers will need an employer ID number, and they will also need to register for the Electronic Federal Tax Payment System (EFTPS) to make federal payroll tax payments. Employers will also need to register on the state level for unemployment tax accounts as well as state income tax accounts.
2. Payroll Taxes – are any taxes that are withheld from an employee for income tax, Social Security, or Medicare; or any taxes paid by the employer on behalf of the employee. These taxes are referred to as “Trust Fund Taxes” because they are held in trust for the employee. These taxes must be withheld from their pay, tracked along with the employer funds that are set aside, and then ultimately filed and paid to the correct agency.
3. Employer Responsibilities – When a new employee is hired it is the employer’s responsibility to ensure the correct payroll tax documents are filled out, it is also their responsibility to ensure that their payroll tax calculations are correct and then that amount is withheld from their employee’s pay. Employers must then set those funds aside for payment along with their employer portion of the taxes. It is then the responsibility of the employer to ensure those payroll taxes are filed and paid in a timely manner.
4. Filing and Paying – All federal payroll taxes (income tax, social security, and Medicare) are paid through the EFTPS system. These payments are due semi-weekly or monthly based on the amount of taxes owed. Larger tax liabilities are paid semi-weekly, while smaller liabilities are paid monthly. Quarterly a form 941 must be filed, this form shows the amount collected for income tax, FICA (Social security and Medicare) and then the total amount owed for FICA including the employer owed portion. This form should also detail the amounts deposited each cycle for taxes. If your deposits are less than the 941 shows is owed. The employer must pay the difference.

For State income and unemployment filings and payments, each state is a little different. Here in Mississippi income taxes (also called withholding taxes) are paid on a monthly basis, by the 15^th of the following month. For Unemployment taxes, those are paid quarterly with a wage report attached. In MS these two payments are made on separate websites. You must register with the MDES (Mississippi Department of Employment Security) for the unemployment account and with the Mississippi Department of Revenue for the withholding account

If this is all too much for you, consider hiring a payroll processing service. Here at Watkins and company we offer a wide range of packages from strictly payroll services, to full bookkeeping and accounting services. Call us for a quote at (601) 936-9288.