Find out which payroll forms your small business needs.
- Employers are required to submit multiple payroll forms to the IRS.
- Payroll forms include information about employee wages and withholdings. Mandatory withholdings include federal and state taxes. Voluntary paycheck deductions may include health insurance costs and retirement account contributions.
- Payroll regulations can be difficult to navigate. Hiring a payroll service or an accountant ensures you file payroll taxes correctly and avoid costly fines.
When a new hire is welcomed to the team, small business owners have to do a lot more than just get them up to speed on what their job entails. One big task is making sure they get paid properly and that all the necessary payroll forms are filled out correctly.
While owning a business can be rewarding on many levels, managing payroll forms can be a pain if you're not familiar with the ones you need. During this process, you will be working with various documents based on your employees and business type. There are many forms to consider, and it's important to get it right.
The Internal Revenue Service penalizes businesses for filing incorrectly or failing to pay employment taxes. Fines vary by the level of the charge, with federal offenses typically more expensive than state ones, depending on the violation. A few years ago, the IRS fined 6.8 million payroll tax penalties, which amounted to $4.5 billion. It's safe to say the IRS isn't messing around, which is why it's important to understand each form and when it's due. [Read related article: How to Do Payroll]
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What payroll tax forms do you need to know about?
Missing a payroll tax deadline or filing the wrong form can have expensive consequences. Below we'll explain the payroll report forms that you need to keep on your radar.
Payroll report forms
A payroll report form is used to inform the government of your employment tax liabilities. On this form, you document the taxes you withheld from employee wages and the taxes you paid. Be sure to submit payroll reports for both federal and state taxes.
Form 941, the Employer's Quarterly Federal Tax Return, reports the number of employees you have, their wages and taxable tips, and the federal income taxes you withheld. Social Security, Medicare taxes and sick pay are also documented here, along with any adjustments made to them. You must file this payroll tax form unless you have already submitted a final return, are a seasonal employer, or employ farm or household workers. A payroll form should be filed quarterly.
Due dates: April 30, July 31, Oct. 31, Jan. 31
Form 944 is sometimes used instead of Form 941 by very small businesses. This is known as the Employer Annual Tax Return, and the only businesses that qualify to use it are those that have $1,000 or less in annual liabilities for Social Security, Medicare and federal income taxes. Additionally, you must have a written notification from the IRS permitting you to use this form instead of Form 941. This payroll tax form is submitted once annually instead of quarterly, so if you're qualified to use it, you should.
Due date: Jan. 31
Form 940 is the Employer's Annual Federal Unemployment Tax Return. This payroll tax form is used to report the federal unemployment tax – or the FUTA tax, in reference to the Federal Unemployment Tax Act. This tax funds unemployment compensation to employees who have recently lost their jobs. Your business must pay FUTA taxes if you paid at least $1,500 in wages in a quarter within the past two years. These taxes are paid quarterly but reported once a year.
Due date: Jan. 31
The W-2 is one of the better-known forms and should be given to each employee at the end of each year. It is used to report each employee's annual compensation and all federal, state, and other payroll tax withholdings. This does not need to be filled out for independent contractor workers; you'll fill out Form 1099 for them instead.
Due date: Jan. 31
The W-3 is basically a condensed version of your W-2 forms. For example, one W-3 can represent 10 W-2s. This form is called the Transmittal of Wage and Tax Statements. It includes total earnings, FICA wages, federal income wages and tax amount withheld. You do not need to give W-3s to your employees. Your W-3 should be sent to federal and state governments along with your W-2 forms.
Due date: Jan. 31
If you provide a health insurance plan for your employees that meets or exceeds what the Affordable Care Act calls "minimum essential coverage," you should file Form 1095-B. On it, you'll note the type of health insurance, whether dependents are covered, and the coverage period for the prior year. Your employees will use this form to prove they have qualifying health insurance that exempts them from paying a penalty when they file their tax returns. If your business has at least 50 full-time employees and is what the ACA calls an "applicable large employer," you would fill out Form 1095-C instead.
Due date: Jan. 31
Form 1094-B is the Transmittal of Health Coverage Information Returns, which is similar to the W-3 in that it summarizes Form 1095-B with the number of forms you're submitting. It also gives the IRS your name and phone number so it can contact you if it has questions about the forms. As an employer, you don't have to send Form 1094-B to employees; just submit it to the IRS along with the 1095-B forms. Again, if your business is classified as an "applicable large employer," you would fill out Form 1094-C instead.
Due date: Feb. 28
Form I-9 must be included as part of your onboarding package for new hires. The form confirms employee eligibility within the United States. Both U.S. citizens and non-citizens must have Form I-9 completed before receiving payment for their work. The employee attests authorization to work in the United States while also providing documentation (like a birth certificate or driver's license) to prove eligibility. Employers must review the documents and confirm if the papers appear genuine and not falsified. The employer is expected to keep Form I-9 on file in case of government review.
The Department of U.S. Citizenship and Immigration Services state that the form is required within three days of hiring a new employee. As an example of the employee started work on a Tuesday, the form must be submitted to the employer by that Friday.
Due date: Three days after the hire date
Form W-9 is specifically for companies that hire independent contractors. If the company pays the independent contractor more than $600 in a tax year, the company has to report those payments to the IRS using Form 1099-MISC. On Form W-9, the employer asks the contractor (or freelancer) for the tax filer’s name, address and tax identification number. Since the W-9 is not filed, there isn't a specific due date for the form. However, companies should request the form be completed before paying the independent contractor.
Due date: At the time contract work is ordered
Form 1099 refers to a series of documents made available through the IRS. Employers must submit Form 1099 to provide information to the IRS about any money paid to non-employees during the tax year. Form 1099 covers various types of compensation, with the exception of wages and salaries paid to an employee.
Businesses file Form 1099 as an information return when they pay independent contractors. Examples of independent contractors include freelance writers, graphic artists and consultants. Any income made through contractual work is reported through Form 1099. Since no taxes are withheld, the independent contractor is responsible to report and pay income tax based on the information listed on the Form 1099. Businesses are responsible for sending the Form 1099 to independent contractors before January 31.
Due date: Jan. 31
What's a payroll direct deposit form?
A payroll direct deposit authorization form allows employers to send money to employees' bank accounts. Most employers ask employees to provide a voided check to fill out the form, as it provides the ABA routing number that identifies the employee's bank and account number. After the employee signs the form and gives it back to the employer, their money can be sent directly to their account. Banks typically use the Automated Clearing House to coordinate these payments. This solution is not only greener and more secure than paper checks, but it also cuts out the hassle of cashing a check or waiting for it in the mail.
What are certified payroll forms?
Businesses with government contracts need to submit a certified payroll form, also known as Form WH-347. When a payroll report is certified, it means employees have been paid according to the Davis-Bacon prevailing wage requirement, and it includes a signed statement of approval that confirms the payroll forms are complete and correct.
A certified payroll report includes the names of every employee, the nature of the work they did, wages, hours worked and amounts withheld. It's typically due the last day of the payroll period.
When filing certified payroll forms, keep in mind that every state has its own requirements and may ask for multiple forms and filing. Be careful not to overlook your state's conditions.
How do you add an employee to payroll?
If you are hiring your first employee and don't yet have your EIN (employer identification number), you'll need to get it from the IRS or by submitting Form SS-4. You may also need to get state and/or local tax IDs.
The next step is to verify that your new employee is eligible to work in the U.S. To do this, you need your employee to fill out an employment eligibility form, otherwise known as Form I-9. You'll also need them to fill out an employee's withholding certificate, better known as a W-4, to make sure you withhold the correct tax amounts from each paycheck. [See why Gusto is our leading payroll software for paying employees and contractors.]
Once you have the completed forms from your employee, add them to your payroll. If you use a payroll provider, you'll need to contact the company to add your new employee to your plan. Make sure to schedule pay periods and have compensation plans for holidays, vacations, and leave. To stay out of trouble with the IRS, report your payroll taxes on time. [Read related article: 4 Common Payroll Headaches and How to Avoid Them]
What's the difference between a payroll status change form and a payroll deduction form?
Payroll status change forms and deduction forms are different in terms of what they do, but you need both when you hire new employees.
Payroll status change form
As your business grows, you may have an employee whose status or position changes, which can affect their pay, whether they work full or part time, their position or job title, and the department they work in. It's important to document these changes with a payroll status change form, which can then be placed in the employee's personnel file as part of their employment history.
Payroll deduction forms
A payroll deduction form does just what its name suggests: It helps you determine and record how much money will be withheld from an employee's payroll check. Some deductions are mandatory, such as taxes, while other deductions are voluntary, like 401(k) plans, insurance plans, and union and uniform dues. Court-ordered payments, such as child support payments, may also be garnished from employee wages. This form gives your payroll provider the information it needs to withhold the proper amounts from your employees' paychecks.
Tips to avoid making payroll mistakes
There's no shame in asking for a little help. If you're insecure about how to set up payroll for your employees, or if you simply want to save yourself the headache of navigating payroll regulations on your own, sign up for a payroll service or hire an accountant. It's better to pay for the service and have it done correctly than to pay fines for your mistakes. Here are three tips to help you avoid common payroll mistakes.
- Pay attention to deadlines for tax payments and filing. Depending on your business, you may have payroll tax payments due annually or quarterly.
- Be careful not to miscalculate overtime. Some states have their own overtime regulations, and in such cases, the regulation that will give the employee the higher pay prevails. Take a look at your state's labor laws beforehand to ensure you're paying your employees fairly.
- Set aside time for processing payroll. Late paydays lead to unhappy workers, and rushing it can cause costly mistakes. If you overpay or underpay your workers, not only will you have to take time to make the correction, you may even face fines.