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Figuring the Amount of Federal Payroll Tax Deposit

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Calculating the Federal Payroll Tax Deposit for Your Business
Figuring the Amount of Federal Payroll Tax Deposit

Part 1 of 2011 Form 941

The prior article in this series about preparing payroll checks for your arts and crafts business shows you how to figure gross and net payroll. If you incorporate your arts and crafts business or hire employees for your sole proprietorship, it's important you know how to prepare payroll checks and pay the necessary payroll taxes. This articles gives you the scoop on handling payroll taxes.

Introduction to Accounting for Payroll Taxes

You may be thinking, well preparing the payroll checks isn't that big of a deal but knowing what to do with the payroll taxes is! It is confusing the first time you tackle this task. But don't worry. Successfully remitting payroll taxes is a breeze with some easy organization.

The easiest way to handle this if running payroll manually is to organize your information at the end of each payroll period in the same way it will have to go on the Internal Revenue Service's quartering reporting form.

Forwarding Payroll Taxes to the Gov

You can't just hand onto the taxes you withhold from your employee's checks indefinitely. Depending on your classification as an employer, you have the requirement to submit the employee and employer portion of the payroll taxes within a certain period of time.

Explaining Form 941: Employer's Quarterly Federal Tax Return

While you have to remit payroll taxes more frequently, you have to submit Form 941 four times a years. The deadline is by the end of the month after each calendar quarter: April 30, July 31, October 30 and January 31 of the following year.

Since you'll eventually have to use this form, keep your accounting life as simple as possible by maintaining your payroll records the same way the Form 941 asks for it.

Walking Through Form 941 Part 1

If you are new to the Form 941, you may be surprised by its 'paint by the numbers' format. However, the first time you prepare any IRS form, it can be kind of herky-jerky so let's walk through the lines that aren't immediately understandable:

  • Line 2: Going back to the example in the first page of my payroll series, you pay yourself gross wages of $1,000.
  • Line 3: Ditto the federal withholding tax, using the Circular E, you figured your federal withholding tax to be $120.
  • Line 5a: Okey dokey, if you read the info on the Circuler E, you find out that taxable social security wages are capped at a certain dollar amount. As a general rule, unless you receive more than $100,000 in wages each per year, this is not something you'll need to worry about. So, $1,000 times .104 = $104.00.

    If you do have gross wages over $100,000, dig into the Circular E to see what the limit is for the contemporaneous year.

  • Box 5b: This shouldn't ever be relevant for an arts or crafts business. Honestly, I can't ever see this happening, however, if for some reason, you pay your employees tips too, stick the dollar amount of tips paid on this line.
  • Box 5c: There is no limit for taxable Medicare wages so for this box, multiply $1,000 by .029 to get $29 for this portion of the employment tax.

Figuring Up the Bottom Line

Totaling the amounts in Column 2 gives you $133 ($104 plus $29). Adding $133 to the amount of federal withholding tax in Box 2 gives you $253, which is the payroll tax amount you need to deposit for this pay period.

Please note: for 2011 only, FICA tax is subject to a reduced rate.

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