When hiring employees, you must withhold federal income tax from their wages. To determine the correct amount of federal income tax to withhold, you need to secure a completed Form W-4, Employee's Withholding Certificate, from each employee. The amount of withholding is calculated using the methods described in Publication 15-T, Federal Income Tax Withholding Methods.
In addition to federal income tax, you are also required to withhold social security and Medicare taxes from your employees' wages. If an employee's wages exceed $200,000 in a calendar year, you must also withhold Additional Medicare Tax. These taxes are collectively referred to as employment taxes.
The withheld federal income tax, social security tax, and Medicare tax must be deposited with the U.S. Treasury. You are responsible for making these deposits through the Electronic Federal Tax Payment System (EFTPS). This system allows you to make tax payments 24 hours a day, seven days a week, and helps reduce payment-related errors.
You must report the wages paid and the taxes withheld on Form 941, Employer's QUARTERLY Federal Tax Return. This form is filed quarterly and includes details such as wages paid, federal income tax withheld, social security and Medicare taxes, and any adjustments for the current quarter.
Additionally, you are responsible for paying the employer's share of social security and Medicare taxes, which are not withheld from employees' wages. You may also be liable for Federal Unemployment Tax (FUTA), which is reported on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. FUTA tax is paid solely by the employer and is not deducted from employees' wages.
To summarize:
By following these steps, you will ensure compliance with federal tax withholding and reporting requirements for your employees.
Sources:
Publication 963 (11/2014)
Publication 15 (2024)
Instructions for Form 941 (03/2023)
Publication 583 (1/2021)
Publication 3908 (9/2019)
Publication 515 (2024)
