Payroll CPA | IRS Form 941 Payroll Tax Deposit Example | Employer’s QUARTERLY Federal Tax Return

Payroll CPAs often must file back tax Form 941 returns or amend them with IRS Form 941-X for a new Client. Our earlier post, Making Your Payroll Process Easier to Do and Understand, shows the overall payroll process and reporting requirements: monthly, quarterly and annually. But here I’ll look at the five components of the IRS Form 941 deposit.

I like to make my business Client as self-sufficient on payroll as they’d like to be. And then be on call for payroll support when you need it. Outsourcing payroll is expensive, which is fine and can make good business sense. But often the underlying reason for not making payroll an internal function is fear of the payroll process. Payroll isn’t rocket science and most folks can handle it themselves once shown how. Perhaps with us as backup, should questions arise. Payroll has multiple internal cross checks that make it obvious when something is wrong. For in-house payroll administration the process stays the same and only the numbers change. But you need a bit of cash flow discipline.

“The real pitfall of payroll? Thinking of net payroll as the true cash flow. Better to think of your total payroll expenses as 110-115% times gross wages.”
- Gary Bode, payroll CPA accountant

In addition to the five federal Form 941, Employer’s QUARTERLY Federal Tax Return, other payroll related or payroll dependent functions exist. Here’s a few examples:

• Workman’s Compensation premiums. These relay on your employee’s gross pay and worker classification.
• Health insurance premiums.
• State unemployment tax - SUTA.
• Federal unemployment tax - FUTA.
• Retirement plan contributions.

If you think of your payroll costs in terms of net pay, the company might fall short when these liabilities are due.

Deposit Frequency

It depends on your circumstances. Form 941 deposit requirements vary from every pay period to calendar quarter. Penalties are significant. Some folks incur criminal charges for not the depositing the Trust Fund components of their company’s payroll tax deposits, read more below.

“Make your company’s Form 941 payroll tax deposits on time. The IRS imposes large penalties and even criminal charges for payroll tax violations.”
- Gary Bode, payroll CPA accountant

IRS tax Form 941 due dates.

• April 30th: reports January through March.
• July 31st: reports April through June.
• October 31st: reports July though September.
• January 31st: reports October through December.

EFTPS, Electronic Federal Tax Payment System

Eventually every company will have to make the Form 941 deposits through the IRS portal, EFTPS, Electronic Federal Tax Payment System. They ask for a breakdown of your payroll tax liabilities into three components:

• Social Security.
• Medicare.
• Federal Withholding.

The total deposit must be correct, but the three types of EFTPS deposits can be estimates. The exact calculation occurs on Form 941, Employer’s QUARTERLY Federal Tax Return.

The five components of IRS tax Form 941 payroll deposits:

• Federal with holding. Deducted from the employee’s gross pay, federal with holding is held in trust until the company deposits it to the US Treasury. The amount depends on the gross pay, frequency of the pay period, and number of allowances the employee claims. Easily obtained through IRS published tax tables.
• Employee Social Security. 6.2% of gross pay up to a calendar year wage cap, which generally increases every year. $113,700 for 2013 and $115,500 projected for 2014. In this example, no employee has exceeded the wage cap for the year and all gross payroll is subject to the 6.2%. Also held in trust.
• Employee Medicare Tax: 1.45% of gross wages with no yearly wage cap. Also held in trust.
• Employer’s Matching Social Security Tax: 6.2%. Not held in trust, because your CPA doesn’t deduct it from the employee’s gross pay. It is an added cost of employment to your company, over and above gross wages.
• Employer’s Matching Medicare Tax: 1.45% Not held in trust.

Finally the Example

Gross payroll last month was $10,000.

• $1,000 of federal with holding got deducted from the paychecks.
• 6.2% of Social Security got with held from the employee’s gross pay: $620.
• 1.45 % of Medicare Tax was with held from the employee’s gross pay: $145.
• Employer’s matching Social Security tax: 6.2% of Gross payroll: $620.
• Employer’s matching Medicare tax: 1.45% of Gross payroll: $$145.

Total deposit is $2,530, the sum of the above five figures. $1,765 of this was with held from the employee’s paychecks (1000+620+145) and $765 (620+145) is an additional expense, on top of gross pay, to the company.

If you need a free payroll service initial consult, or on any accounting issue, please call us at (910) 399-2705.