There may be times in which business owners and managers throw their hands up in the air and say there is too much paperwork! There are too many forms! So many forms with so many purposes that all form part of the responsibility of payroll processing.
Organizations that outsourced their payroll to professionals from day one or have not taken care of payroll, payroll taxes, and the paperwork associated with payroll for some time may not be familiar with where withholdings are being sent and what current requirements are. Basic quarterly filings may have been overlooked for some time with the assumption that the payroll service is taking care of it.
Payroll processing is often seen as solely cutting paychecks, but the administrative side (calculating deductions and withholdings, managing deadlines for submitting tax returns and generating the correct reports) is complex and getting it wrong can be costly.
Too much paperwork!
The CARES Act as a result of the COVID19 Pandemic really had business owners rushing to gather all necessary information to validate payroll dollars in order to apply for relief. The relief required businesses to produce quarterly tax reports to validate the dollar number of requested funds.
If you or someone you know found yourself at a loss for what was needed, you are not alone!
What is the employer and employee’s responsibility?
Payroll taxes include both the taxes that the employer withholds from an employee’s pay AND taxes the employer pays based on the employee’s wages.
Payroll taxes that the employer collects and remits on behalf of employees include Federal, State, and Local income taxes. Additionally, the employer collects the employee’s FICA (Social Security and Medicare) responsibility.
Payroll taxes the employer pays include FICA (Social Security and Medicare), FUTA (unemployment insurance), and state unemployment tax.
Income taxes that are withheld on behalf of the employees are remitted on a quarterly basis to Local, Federal, and State authorities.
Much of the business community finds these taxes, regulations, deadlines, and forms extremely challenging to keep up with. Many frustrations that business owners cite include having calculating withholdings incorrectly or missing a deadline by even a day resulting in hefty fines.
Retrieving a 940, 941, or a 944:
Many small businesses applied for the Paycheck Protection Program and needed to gather reports as part of the documentation required to validate payroll dollars.
Businesses that have entrusted their payroll processing to a payroll provider service may not have paid attention to which reports are applicable to their specific business.
Differentiating which forms are required for PPP and their purpose:
FUTA or federal unemployment is reported on Form 940. Employer’s Annual Federal Unemployment Tax Return at the end of the year.
Federal Withholding and FICA Taxes are reported on either Form 941 OR Form 944.
These three forms are commonly misunderstood due to their similar numeric sequence.
The Federal Government decides which form an organization is required to use based upon the dollar amount of the organization’s withholdings.
Organizations filing a Form 941 are required to file the last day month following the quarter or “quarterly.” For example for the first quarter (January – March), the filing would be due by April 30th. Organizations that are to file on an annual basis will not file quarterly and will ONLY file a Form 944.
Other mandatory payroll withholdings that are unrelated to payroll wages may include any court-ordered wage garnishments such as child-support and tax levies that need to be submitted to specific government entities.
Many employers offer benefit packages that include health insurance and a 401(K) by payroll deduction.
All employers are to update W-2s with the cost of healthcare coverage prior to issuing them for the previous year.
Organizations that are S Corp with health contributions for shareholders also are required to submit an annual update at year end.
Small businesses with over 50 employees:
The Affordable Care Act (ACT) mandates that the employer provides a copy of the Form 1095-C to every full-time employee. The employer must keep a copy of every form and submit to the IRS to fulfill ACA reporting.
The ACT requires this of organizations with an average of 50 or more full-time equivalent employees (FTEs) from the previous year.
As employees are hired and are terminated many employers struggle with recalculating and find keeping abreast with changes frustrating. Many businesses choose to outsource payroll processing. This is a great way to ensure that paperwork is properly filled out and submitted on time. If questions arise, the payroll processing provider can help provide documentation that may be essential upon request.
PaySmart is a payroll provider located in Mechanicsburg, PA supporting small businesses in the Central PA region. PaySmart is dedicated to helping small businesses take care of all of their payroll needs. To learn more information about how PaySmart may provide payroll solutions please contact 717-766-1777. Our New Client Concierge is waiting for you.