As an employer, you are responsible for withholding federal taxes from employee paychecks and then remitting the sums to the Internal Revenue Service. Although this requirement adds paperwork and bookkeeping chores to your to-do list, the process of calculating employer tax withholding is straightforward. The IRS provides Publication 15 (Circular E), Employer's Tax Guide, which contains the information you need to execute your employer payroll tax responsibility and stay out of trouble. Circular E is updated every year to reflect changes in the federal tax code.
What Is Included in Circular E?
Schedule E is a comprehensive guide to federal employer payroll taxes. It walks you through the process of setting up an IRS account as an employer, receiving an Employer Identification Number and determining who you must treat as an employee for tax purposes. It also provides information on setting up your payroll system to sync with IRS reporting, withholding requirements, and determining the type of payroll period to use: weekly, biweekly or monthly. It also provides information for remitting payroll tax payments to the IRS, whether by mailing checks if your quarterly payroll is under a threshold amount or by making online tax deposits according to a schedule determined by your tax and payroll volume. Circular E also contains dozens of pages of tax tables you can use to look up the amount to deduct from each employee's paycheck based on pay and individual circumstances such as marital status.
How to Use Circular E in Business
Some of the information in Circular E is aimed at first-time employers, such as the information about registering for an EIN. Other information, such as the specifications governing who to treat as an employee, is relevant when you first hire employees, but you may refer to it over time as you employ workers under different circumstances. The tax tables at the end of Circular E are relevant to your payroll tax calculations on an ongoing basis, especially if your employees are paid wages rather than salaries, and their paycheck amounts vary from one pay period to the next. Keep the copy of Circular E that the IRS sends to you each year and refer to it as needed.
How to Use Tax Tables
When you hire employees, have them fill out W-4 forms to provide withholding information or a synopsis of personal circumstances that affect how much federal income tax they are required to pay. You can find W-4 forms online, and you should keep these forms on file after your employees complete them. When you write payroll checks, find the page in the payroll tax tables that corresponds to your standard pay period and also to a particular employee's filing status, such as single or married filing jointly. Locate the column for the number of withholding allowances specified on each employee's W-4 and scroll down to the line listing the pay range, which includes the amount of that employee's paycheck. The number on the corresponding line and column tells you how much federal income tax to withhold for the pay period.