Payroll
By Jana Reserva
Jul. 9, 2025
Payroll taxes are just one part of running payroll, but they’re a significant part. While payroll processing covers everything from tracking hours to issuing paychecks, the tax side alone spans multiple steps before, during, and after payday. You need to set up the correct withholdings, calculate deductions correctly for each run, file required forms, and meet deposit deadlines.
Paying payroll taxes is more than just sending contributions to the IRS every now and then. Payroll tax obligations can be extremely complex, but a few practical tips can help business owners stay compliant and avoid any surprises.
Here are some best practices for paying payroll taxes:
There are different types of payroll taxes that employers must withhold and process from employee paychecks, including:
Some of these taxes are withheld as tax deductions from employee wages, while others are paid directly by the employer.
Most of these are based on employee wages, so it’s important to understand which taxes apply, how they’re calculated, and what portion your business is responsible for. Before anything else, you need to know what taxes you need to collect and remit, both on behalf of your employees and from your business directly.
For federal income tax withholding, that process starts with Form W-4, which each employee fills out when they’re hired. It tells you how much tax to withhold based on filing status, dependents, and any additional withholding requests. Keeping this information up to date is key to avoiding under- or over-withholding.
Also read: What are different payroll deductions? Taxes, benefits, and more
Accurate time tracking is the foundation of tax compliance, especially when you’re dealing with hourly employees. Every hour worked directly affects how much you withhold for taxes and how much you need to report. These hours contribute to each employee’s taxable wages or the portion of their earnings that payroll taxes are calculated on.
Small errors throw off tax calculations and lead to issues. Ensure you have a system that accurately captures:
You need to be registered with the right government agencies before you can pay or file for anything. You can start with:
If you employ workers in multiple states or eventually open up new locations, you would most likely need to register for each one separately. You need to do this first and foremost, as registration can take time to process.
Payroll taxes are deposited regularly throughout the year. The scheduled deadline depends on how much payroll tax you reported in the past.
Under IRS rules, your deposit schedule is based on a lookback period, which is a 12-month window that determines your tax liability.
For most employers who file Form 941, the lookback period covers the 12 months from July 1 two years ago through June 30 of last year.
Here’s an example:
For 2025 deposit schedules, the lookback period is July 1, 2023 to June 30, 2024. The deposit will be:
If you filed Form 944 in either of the previous two years or you’re filing it in the current year, the lookback period is different. It would be the entire calendar year two years before the deposit year. For instance, the lookback period is calendar year 2023 for 2025 deposits.
It’s also important to take note of the following exceptions:
Depositing taxes is only half of the payroll tax equation. The other equally important part is filing forms that officially report what you withheld, what you paid, and when. Filing forms on time is as crucial as paying taxes themselves. It’s important to note that you could be subject to penalties for late filings, even if you already paid what you owe.
Here are key forms employers must know:
Form 941: Employer Quarterly Federal Tax Return
Form 940: Federal Unemployment Tax (FUTA) Tax Return
Form W-2: Wage and Tax Statement
Form 944: Annual Federal Tax Return (for smaller employers)
Form 1099-NEC: Nonemployee Compensation
Meanwhile, every state with income or unemployment tax has its own set of required forms, which is usually a mix of:
Deadlines and formats vary. If you operate in multiple locations, it’s crucial to track and stay on top of these tax due dates aside from federal requirements.
Once you’ve figured out your federal taxes, you’ll also need to calculate and pay state-level obligations, such as state unemployment tax, which varies by location and employer history. State and local rules are equally crucial as federal payroll taxes, especially for hourly or multi-state teams.
Here are some examples:
Employers must be proactive to stay up-to-date with these rules. It’s best practice to review SUI notices every year, monitor local tax obligations, and understand residency versus work state rules.
Running payroll manually is doable, but it’s very risky, especially when your team grows. You can face audits and fines due to mistakes in tax withholdings, errors in tax forms, or late payments.
If your workforce clocks in and out, works variable shifts, earns multiple pay rates, or moves across locations, automation helps prevent errors that are otherwise easy to miss.
Use payroll software that syncs directly with your time and attendance tracking and scheduling tools so that:
Think of automation as both a time-saver and compliance safeguard. The more complex your operations, the more valuable automation becomes. Payroll software helps reduce the risk of costly mistakes, from inaccurate hours to missed employment tax filings.
Workforce.com connects scheduling, time tracking, and payroll, so every hour worked, break taken, and pay rate used is accurately calculated. Learn more about payroll with Workforce.com. Book a demo today.
Yes. Even if your employees work part-time, you’re still responsible for withholding and remitting payroll taxes. This includes Social Security tax, Medicare tax, federal and state income taxes (if applicable), and unemployment taxes.
You don’t withhold income tax or pay Social Security, Medicare, or unemployment taxes for independent contractors or self-employed individuals. Instead, they’re responsible for handling their own taxes and typically receive a Form 1099-NEC, not a W-2.
Missing a deposit or filing deadline can result in late fees, penalties, and interest from the IRS or your state agency. In some cases, repeat violations can trigger audits or legal action. Automating your payroll tax calculations can help avoid these risks.
Yes, the Electronic Federal Tax Payment System (EFTPS) is the IRS’s official platform for submitting federal tax payments, including payroll taxes. Employers are required to use EFTPS to deposit withheld income tax, Social Security, and Medicare taxes.
Yes. Payroll taxes like FUTA (federal) and SUI (state) are used to fund unemployment benefits for eligible workers who lose their jobs. These are typically employer-paid and are required in almost every state.
The Additional Medicare Tax is a 0.9% tax on wages over $200,000 per year, paid only by employees. Employers are required to begin withholding it once an individual employee’s wages exceed that threshold — no employer match is required.
In most cases, yes. Employers are generally required or encouraged to electronically file payroll tax returns like Forms 941 and 940 directly with the IRS. Wage reporting forms, such as Form W-2, are filed electronically with the Social Security Administration (SSA). E-filing helps ensure timely processing and reduces errors.
Payroll software can handle the most complex parts, such as calculating withholdings and applying the correct tax rates. Workforce.com helps you stay accurate and compliant by syncing hours, pay rates, and locations directly into your payroll calculations, so taxes are easier to manage and less prone to error.
Schedule, engage, and pay your staff in one system with Workforce.com.