Let's take your questions one at a time:
You asked: 1) Do I need to submit monthly W2's (and a quarterly 941) to
the IRS as the 'employer' of myself? Even if I consider the business
paying me annually? My total Soc. security+medicare taxes are under 10,000,
but not when combined with my income taxes. Would this take the place
of my quarterly estimated taxes I currently pay?
Answer: You don't submit W-2s each month. They are filed annually.
You should do a monthly payroll to avoid being questioned by IRS.
Some tax professionals do an annual payroll for their clients.
Frankly, that's just in response to their sheer frustration with
clients who don't keep regular books and have to do all the bookkeeping
as a year-end marathon.
If you're going to have a payroll, I strongly recommend that you use
a payroll service. You'll find links to the top payroll processing
houses in the country here:
Yes, it will cost you about $300 per year - but you can't even
begin to know what headaches they will save you, when it comes to
payroll and payroll tax administration.
A big reason small businesses fail is because they mess up
with their payroll taxes and end up so far behind that
they just can't ever fix it. Emotionally, the battle with IRS
and the state just drains them and cuts into their ability to
run their businesses. Believe me. I've seen this over many
years of watching people painfully ignore sound advice...
because 'I can handle it myself.' Please don't be one of them.
Learn from their mistakes.
You asked: 2) I have not been submitting monthy w2's - do I just submit
one 'big' w2 and they'll let me know if they need a penalty?
Answer: You file Form 941 each quarter. We are in April right now.
The first quarterly filing is due on April 30th. So, you can go back
into the first three months and convert some of the checks you've paid
yourself into payroll checks - and file the Form 941 right on time.
In fact, you're all right on penalties, too. If you don't have more
than $2,500 due with that Form 941, you can avoid all penalties.
You can achieve this by reducing the amount of Federal income tax
withheld, so it keeps you below the $2,500 level when you add in
the 15.3% for FICA and Medicare taxes.
Which leads us to your next question:
3) Circular E shows the current soc. security tax at 12.4% + 2.9%
medicare. I assume this is both the employee and employer parts?
Answer: Yes. The individual's share (you, as an employee) is 6.2%
for FICA and 1.45% for Medicare. As the employer, you will deduct
those amounts from the paycheck and match the other half from the
Your next question: 4) Am I subject to FUTA (unemployment tax of 6.2%?)
Answer: Yes. And no. You need to pay the corresponding unemployment
taxes to your state - and report that on the Form 940. When you do
that, and pay it in on time, your federal rate drops to .008 (or .8%)
of the first $7,000 of your wages. This means that if you can't work,
your are eligible for unemployment coverage. Not bad. I have had some
of my clients with S-corporations file for unemployment when their
corporations had income coming in.
You're doing good research. And you're asking good questions. But
you're not going to get the advice you need to run your business in
a forum like this. We can't see your entire financial picture
(personal and business) or know your goals. Please, please, consult
with a good local tax professional who understands your business or
industry. It will only cost you an hour or two worth of consultation
fees. It will be the best money you ever spent.
If you really, really believe you can't afford that, go to Amazon.com
and do a search for 'small business tax'. All the books that appear
on that first page are really helpful - and cheap.
Clarification of Answer by
10 Apr 2005 18:02 PDT
For you to take advantage of that year-end payroll treatment,
you need to cut a payroll check in December for the net amount
of the payroll, after all withholding has been taken out.
So if you wrote yourself a check in December, you could use that
as the net payroll check.
It's complicated to explain how to turn that into a payroll check
to replace all the checks you meant to write during the year.
Sorry, I couldn't really do that here.
Just understand that the logic involves treating all the earlier
checks in the year as advances against a final payroll.
Truly, truly a risky strategy when you are filing the payroll
tax returns this late.
If you have a substantial payroll for last year, it's well worth
your time to have a tax professional who understands payroll
(and yes, not all do) handle this calculation for you and to
prepare those late payroll tax returns. Someone good might also
be able to help you come up with a good reason why you're late.
They might be able to help you reduce those penalties.
If you prepare quarterly tax returns, your penalties
will start on the due dates of each quarter.
If you prepare payroll tax return for only the last quarter,
your penalties will start in December. They may be lower.
Which means the interest on the penalties will be lower AND
they won't start assessing the interest until January 2005,
instead of April 2004...
Does that help a little?
Really, getting a Pro to do it will cost you less than the
penalties s/he will save you.