Understanding Payroll Taxes
Payroll taxes are the taxes both employers and employees pay on wages, tips, and salaries. These include:
- Federal Income Tax: Withheld from employees' paychecks based on their earnings and W-4 form details.
- Social Security and Medicare Taxes (FICA): Both employees and employers contribute. Employees pay 6.2% for Social Security and 1.45% for Medicare, and employers match these amounts.
- Federal Unemployment Tax (FUTA): Paid solely by employers to fund unemployment benefits.
- State and Local Taxes: Vary by state and locality, and may include income tax, unemployment tax, and other specific taxes.
For more detailed information, you can refer to the following resources:
Forms W-3 and 941
Form W-3: Summarizes all W-2 forms issued to employees and is submitted to the Social Security Administration (SSA). It includes total wages, tips, and other compensation, as well as total federal income tax, Social Security, and Medicare taxes withheld. For more details, you can refer to the IRS Form W-3 page
Form 941: Filed quarterly with the IRS, it reports wages paid, tips received, federal income tax withheld, and both employer and employee portions of Social Security and Medicare taxes. For more information, visit the IRS Form 941 page.
To help you reconcile the differences between your W-3 and quarterly 941 totals, here are some steps along with supporting links from the IRS and TurboTax:
Steps to Reconcile Differences
- Review Year-End Adjustments: Check for any year-end adjustments, bonuses, corrections, or voided checks that might not have been included in the quarterly reports. IRS Year-End Reconciliation Worksheet
- Taxable Benefits: Look at taxable benefits like health and life insurance that may be included in the W-3 but not on the quarterly 941 forms. TurboTax Guide to Payroll Taxes
- Employee Pre-Tax Deductions: Ensure that employee pre-tax deductions are reported consistently on both the quarterly tax returns and the W-3. TurboTax Payroll Taxes Discussion
- Compare Totals: Compare Box 1 on the W-2s with Line 2 on the 941 forms to ensure they match. QuickBooks Payroll Reconciliation Guide
- Run a Payroll Summary: Run a payroll summary report to verify that the 941s were completed correctly. Steps for Reconciling IRS Form 941 to Payroll
Correct Forms if Necessary:
- If the W-3 is incorrect, issue corrected W-2s to employees and file a corrected W-3.
- If the W-3 is correct but the 941 forms are wrong, file Form 941-X to correct the errors. IRS Form 941-X Instructions
