If you’re starting a small business and hiring employees, mastering payroll is likely to be one of your first major hurdles. Dealing with payrolli ...
What Is a Payroll Report?
Whether you’re a small business owner or an HR or accounting professional, you probably have a good idea just how involving payroll can be. From keeping track of employee timesheets and bonuses to ensuring the right taxes are withheld, payroll processing can be a full-time job.
Payroll reports are a huge part of the process, as is keeping track of federal, state, and local payroll reporting requirements and deadlines. Additionally, insurance providers may require the submission of payroll reports to determine insurance rates.
Payroll reporting can be confusing and cumbersome, but it is an essential part of doing business. Fortunately, this guide lays out all the insight and tips you’ll need to stay in full compliance.
Types of Payroll Reports
Businesses are required to file several different payroll reports, each with its own tax purpose. Some federal payroll reports have to do with the payroll tax, some with income tax, and others with the SUTA or FUTA tax.
Here are some of the most common payroll reports, along with why they’re important.
Form 940 is also known as the Employer’s Annual Unemployment Tax Return. Employers are required to file this form to report their federal unemployment tax, or FUTA, liability. This tax is an employer-only tax, meaning that a company does not have to withhold federal unemployment taxes from employee wages.
If you paid at least $1,500 to any employee or any employee worked at least 20 weeks in the calendar year, you’re responsible for filing a Form 940. Full-time, part-time, and temporary employees are all taken into consideration, so make sure you include everyone on your payroll.
Most employers are required to pay FUTA taxes, but some organizations are exempt. If you’re unsure, consult a trusted tax professional.
Form 941, or the Employer’s Quarterly Federal Tax Return, is used to report quarterly employee wages and payroll taxes. In addition to wages paid to employees, it also reports federal income taxes withheld, such as FICA.
FICA stands for Federal Insurance Contributions Act and includes taxes withheld for Social Security and Medicare. Form 941 includes data on both employer and employee FICA contributions. Depending on your business type, form 941 may also include reported tips and additional taxes withheld.
Form 944 is the Employer’s Annual Federal Tax Return and includes the same information as form 941, except that it’s filed annually instead of quarterly. Keep in mind that businesses cannot file both forms 941 and 944, and that Form 944 was developed specifically for small businesses with a lower tax liability.
The IRS will instruct a business to file Form 944, rather than 941. In general, companies are required to file this form if their annual liability for federal income taxes, Social Security, and Medicare is less than $1,000.
As always, if you’re unsure as to which form to file, get in touch with a tax professional.
IRS Form W-2 is an employee’s Wage and Tax Statement. Employers file these for each employee on the payroll to report their annual wages. Employees also receive a copy they can use to file their own personal tax returns.
An employee’s Form W-2 includes all wages as well as tips and other compensation, like bonus payments. It also reports how much taxes were withheld during a particular tax year. Employers are responsible for filing a Form W-2 for each employee on the payroll, including those who may have left the company before the end of the year.
Copies of Form W-2s must also be sent to the Social Security Administration, and in some cases, state and local tax departments. Note that you do not have to file W-2 forms for independent contractors.
A W-3 is simply a summarized report of all reported W-2s. It’s also known as a Transmittal of Wage and Tax Statements. Like W-2s, employers are required to send W-3s to the Social Security Administration. W-3s are not sent to employees.
Form 1099-NEC and 1099-MISC are used to report wages and compensation provided to independent contractors. Employers use a 1099-NEC to report payments of $600 or more in a calendar year.
Copies of Forms 1099-NEC are filed with the IRS as well as provided to the independent contractors that received payment.
State and Local
Depending on your business location, state and local governments may have their own requirements when it comes to an annual or quarterly payroll report. In addition to specific forms, they may also have different deadlines or standards for a certified payroll report.
Check with your state and municipality to determine the appropriate guidelines. Working with a tax professional will also ensure your compliance with state and local tax laws.
If you have workers’ compensation insurance, your insurer will likely require you to provide payroll reports. Insurance providers use the data to come up with your insurance rate, which is a percentage of payroll.
If your company is new, your workers’ compensation insurance provider will make an estimate for your first year in business and use your annual payroll data after.
In addition to the payroll reports required by law, your company may also wish to run general payroll reports. Reviewing your payroll data provides you with valuable business insights, like your quarterly payroll and tax spending and an overview of all withholdings and deductions.
You can also drill down and explore payroll data on specific departments and employees. If you’re considering a merger or acquisition or looking to secure financing, you may be required to provide payroll reports as part of the due diligence.
Information Needed for Payroll Reports
Whether running payroll reports for internal purposes or tax returns, you’ll need the following information:
- Employee names, birthdates, social security numbers, bank account details, and mailing addresses. It may also include employment eligibility details listed on Form I-9;
- Pay rates and whether your employees are paid a salary or on an hourly basis;
- Health insurance rates, plus employer and employee contributions;
- Federal, state, and local tax rates.
Depending on which data you’re looking to review, you may also want to narrow down your payroll reports by a specific timeframe. This will help you identify trends and help you make decisions around budgeting and workforce planning. Some common timeframes include specific pay periods, quarters, and fiscal years.
When To File Payroll Reports
As mentioned above, payroll reports are filed either quarterly or annually. To recap, here’s when each form is due:
Form 941s are due each quarter, on April 30, July 31, October 31, and January 31. Remember, you may be exempt from filing Form 941 if your business meets certain requirements, and you may need to file Form 944 instead. Check the IRS guidelines and consult a tax advisor.
The following payroll reports and forms are due January 31 each year:
- Form 940
- Form 944 (if applicable)
Remember to check your state and local filing requirements, as you may need to provide additional payroll reports.
Payroll Report Tips
To stay on top of payroll reports and filing deadlines, it helps to plan ahead and stay organized. Missing filing deadlines can result in penalties and costly fines. Set reminders in your calendar and give yourself plenty of time to gather the necessary data. If your business has an accounting or HR team that handles payroll, make sure they’ve got the latest payroll software.
Using a payroll service provider can greatly reduce the time and resources needed to run and file payroll reports. Many online providers offer tools that track your payroll data and reports that can help streamline the process.
It’s also common for full-service providers to file payroll reports for their clients. Using a payroll service provider can give you peace of mind that your reports are filed accurately and deadlines are met.
Payroll reports are a major component of a company’s payroll function, which means that it’s crucial to familiarize yourself with the required forms and tax filings. Investing in payroll software or hiring a service provider is usually a good idea, as it will enable you to stay in compliance stress-free.
Either way, the more prepared you are when it comes to payroll reports, the more time you’ll have for running, and growing, your business.
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