Your Guide to Employment Taxes - Part 2

Federal Income Taxes/Social Security and Medicare Taxes Deposits

In general, you must deposit income tax withheld and both the employer and employee social security and Medicare taxes by mailing or delivering a check, money order or cash to a financial institution that is an authorized depository for Federal taxes.  Deposit requirements and method of deposit varies based on the amount of taxes...please see Publication 15 pages 19 to 24 for when and how to deposit and penalties for failure to deposit.

The taxes you withhold from your employee's paycheck (their income tax and social security and Medicare) are part of their wages that you pay to the Treasury instead of to your employees.  Your employees trust that you pay the withholding to the Treasury by making Federal Tax Deposits.  This is why they are called trust fund taxes.  Through this withholding your employees pay their contributions toward retirement benefits and the income taxes reported on their tax returns.  Your employees' trust fund taxes, along with your matching share of social security and medicare are paid to the Treasury by making Federal Tax Deposits.

Employment tax deposits are a current expense.  Postponing paying them is NOT the same as making a late payment on your phone bill or to a supplier.  The Treasury expects these tax deposits to be paid before ANY other bill, including rent or other expenses.  Congress has established large penalities for delays in turning over your employment taxes to the Treasury.  The longer it takes to pay the money, the more it will cost you. The IRS has the authority to hold you personally responsible for the payment of these taxes if you are responsible for collecting or paying these taxes and willfully failed to collect or pay these taxes.  This means collection action can be taken against your personal assets, including a federal tax lien or seizure of these assets.  DO NOT TAKE this responsibility lightly, the IRS can seize and shut down your business.

Federal Unemployment (FUTA) Tax Deposits

This tax is not withheld from your employees pay.  This tax is paid by the employer only.  You are required to deposit the FUTA tax if at the end of a quarter it is over $500, it must be deposited by the end of the month following the quarter.  If the total tax is under $500 at the end of the year it can be submitted with the annual 940.