Payroll accounting involves a company's recording of its employees' compensation including:
  • Gross Wages, Salaries, Bonuses and Commissions
  • Withholdings for Federal Income, State Income, Social Security and Medicare Taxes
  • Withholdings from Health Insurance Premiums and other Retirement Savings Plans
  • Other benefits such as Paid Holidays, Vacations and Sick Days, etc..
  • Employer's expense for any of the above benefits

Employee vs Independant Contractor

Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services.
Usually only has one employer Usually consults for more than one company
Set by employer Works out of his/her home
Usually employers office Works out of his/her home
Can receive employment benefits such as insurance from employer.

Entitled to workers' comp & unemployment compensation
Does not receive employment benefits from employer.

Not eligible for workers' comp or unemployment comp
Works under control of employer Works independently
Does as directed by employer Decides how to accomplish tasks without employer's input
Some taxes on wages withheld by employer Not subject to tax withholdings; pays self-employment tax
Can be terminated by employer for good cause and with notice (unless "at will") Usually can be terminated by employer for any reason at anytime (unless contract states otherwise)
Covered by federal and state wages and hour laws (i.e. minimum wage and overtime) Paid according to contract. Does not receive overtime pay

Wages Classification

Wages are payments made to an employee for his/her personal services, include, but are not limited to the following:
  • Salary
  • Commissions
  • Bonuses
  • The reasonable cash value of compensation other than cash
  • Tips
  • Employer Contributions, without payroll deductions into a qualified tuition plan account for the beneift of the employee
  • Sickness & accident payments except those made under a worker's compensation law or paid from an employee -funded plan
  • Fringe benefits provided or paid for by the employer on behalf of employees and their dependents unless specifically excluded from income
  • Pension and retirement contributions made by employers unless the contributions are to a qualified plan, such as 401K, etc.
  • Stock Options
  • Prizes
  • Premiums on group term life insurance > $50,000

Setup Payroll

Apply state employment tax account when you start to pay a worker more than $100 in calender quarter.

Apply payroll tax payment ePay

Setup payroll account and get employee form w-4 for withholding information

Payroll Tax and Calculation

Below we have generated a sample paystub demonstrating the calculations and tax rates involved in payrolls.
paystub sample

Payroll Tax Liability

The Payroll Tax Liability contains taxes that are paid by employees, and taxes that are paid by the employer. From the example above the calculation would be $171.00 from the total tax withheld + $233.00 from the total employer taxes and contributions totaling to $404.00. ( $171.00 + $233.00 = $404.00 )

Pay Payroll Tax Liability According to IRS Requirements

Payroll Tax Liability Schedule 4 Quarters in your Lookback Period Due Date
Quarterly Deposit Schedule
Total 941 Tax liabilty < $2,500 Following month of each quarter end
Monthly Deposit schedule
Total 941 Tax liability < $50,000 Following month 15th
Semiweekly deposit schedule
Total 941 Tax liablity > $50,000
If pay day falls on: Then deposit taxes by the following:
Wednesday, Thursday and/or Friday Wednesday
Saturday, Sunday, Monday and/or Tuesday Friday
Next-Day Deposit
Total 941 Tax laiblity > $100,000 Next day

File Quarterly/Annual Tax Return

tax form 941

FORM 941

tax form 940

FORM 940

tax form de9


tax form de9c


tax form w2


tax form w3


tax form 1099

FORM 1099

tax form 1096

FORM 1096

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