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How to Report Payroll Taxes Employers typically use the following IRS forms to report money withheld from employees’ paychecks for federal requirements. They can be submitted electronically or by mail: Form 940 – Used to report annual FUTA tax. Form 941 – Used to report income taxes, Social Security tax, and Medicare tax withholdings quarterly. Form 944 – Used instead of Form 941 by small employers whose annual liability for Social Security, Medicare, and withheld federal income taxes is $1,000 or less. These forms may be submitted electronically or by mail. The IRS requires employers to deposit federal payroll and income taxes through electronic funds transfer using the Electronic Federal Tax Payment System® (EFTPS). State and local regulations and forms vary. Employers must follow their jurisdiction’s rules for reporting employee withholdings and submitting payments to the proper agencies. Who should handle reporting and depositing payroll taxes for your company? It’s important to make sure someone has the knowledge, attention to detail, and time to do it accurately. Small businesses often outsource payroll reporting to an accountant, bookkeeper, or a payroll management company. In larger companies, payroll is usually a function of HR or the finance department. Keep Learning: What is Payroll? Tips for Controlling Payroll Taxes If you want to minimize your payroll tax obligations, discuss your situation with an accountant or other tax professional. Two things to consider that might potentially help reign in payroll tax responsibilities include: Hire independent contractors (ICs) – ICs are not considered employees, and therefore, your business does not have to withhold, pay, or deposit payroll taxes. Be careful to stick to the guidelines established for IC status to avoid the IRS and state coming to you for back payment of employer taxes. Elect S Corp status – C Corporations and LLCs can elect to be taxed as S Corporations, as long as they meet IRS S Corporation qualification requirements. S Corporations are structured as pass-through business entities, which means profits and losses are passed through to the company’s owners/shareholders. S Corporation owners who work in the business are employees, so only income from their wages and salaries are subject to FICA taxes, thus lowering the individuals’ Social Security and Medicare tax burden. While the business owners’ remaining income from the S Corp’s profit distributions is subject to income tax, it is not subject to payroll taxes.