As much as you wish they would, the Internal Revenue Service (IRS) doesn’t take employment taxes and payroll forms lightly. And it’s likely that you don’t either. They’re major aspects of your business that could result in your being fined or penalized if you fail to:
- File your tax returns on time
- Pay your taxes correctly and on time
- Make sure your returns are accurate
- Submit accurate information returns*
With all that in mind, small business owners should ensure they cover all their bases when it comes to payroll forms. But it can be challenging to do that when every form has a different set of requirements, instructions, and due dates.
That’s why in this post, we’ll break down all the essential payroll forms so you understand how they work, which apply to you, and when each is due.
What is a payroll form?
Employers and businesses use payroll forms to report payroll taxes to the IRS. There are a few different types of payroll forms, and each one has a specific purpose. But in general, employers prepare and submit payroll forms to the IRS with a report of the money they’ve paid their employees throughout the year, the taxes they’ve withheld from their employees’ paychecks, and the taxes they’ve paid on their business’s income.
Some of the most common payroll forms that small business owners rely on are:
- Form W-4
- Form W-2
- Form 1099
- Form 940
- Form 941
But there are a few other forms that you might need to use in specific situations, like Form W-9 for independent contractors.
8 payroll forms for small businesses
There are several forms you’ll need to submit in order to stay compliant on both federal and state levels. And you’ll notice that you, as an employer, are responsible for sending these forms to employees, the IRS, or both, which you’ll usually have to file annually or quarterly.
When it comes to filing your payroll forms, you can:
- Fill them out and submit them yourself by mail.
- Ask an accountant or tax professional to prepare and send them in for you.
- Use a payroll software or payroll provider like Homebase to handle your payroll tasks and automatically file your taxes for you.
- Find an authorized e-file provider that takes care of preparing and filing your payroll taxes.
Let’s take a look at some of the payroll forms you’ll likely need to know about for your small business.
1. Form W-4, Employee’s Withholding Certificate
IRS Form W-4 — also called the Employee’s Withholding Certificate or Withholding Allowance Certificate — helps you figure out how much federal income tax to withhold from each employee’s paycheck. When you hire a new employee, you should have them complete a W-4 before their first day on the job because you’ll need it to calculate how much tax to take out of their first and subsequent paychecks.
You should ask employees to review their W-4 form every year so they can update it if a “qualifying life event” occurs, like the addition of any legal dependents or a change in their marital status. When these types of events take place, an employee’s withholding allowance may change and you could be held liable for any incorrect information on their W-4.
Note: You don’t need to submit this form to the IRS, but it’s important to keep a copy saved in your files in case your business gets audited.
2. Form W-2, Wage and Tax Statement
Employers submit Form W-2 — the Wage and Tax Statement — to their employees and the IRS at the end of each year and by January 31st of the next year at the latest. W-2s are a type of information return that are only required for employees you pay in wages or with a salary. They don’t apply to independent contractors or freelancers.
The W-2 details how much an employee earned that year, as well as the total taxes that were withheld from their paychecks. So, the IRS needs a copy of every employee’s W-2 to make sure they’re meeting their tax obligations.
Employees also need to receive their W-2s on time so they can file their yearly tax return, which is due by April 15th. If an employee didn’t pay a sufficient amount of taxes during the year (for their given tax bracket), they’d owe money to the IRS. On the other hand, if the IRS finds that an employee overpaid in taxes throughout the year, they’ll receive a tax refund.
3. Form W-3, Transmittal of Wage and Tax Statements
Form W-3 looks very similar to Form W-2, but employers use it to report how much they withheld from all their employees in total rather than individual employees.
So, the W-3 lists the following:
- The total amount an employer paid out to all of their employees in wages or salary.
- The total amount an employer should have withheld from that pay in social security and FICA (Federal Income Contributions Act) taxes.
- The total amount an employer withheld in FICA and social security taxes.
When you submit your W-2s, you’ll also need to submit a Form W-3 with them. Don’t worry about sending a copy of the W-3 to your employees; the government doesn’t require it.
It may seem redundant — after all, you’ve already sent your W-2s detailing how much you’ve paid individual employees. But the IRS relies on W-3s so they don’t have to compile the total amount you’ve paid in income on their own. W-2s also act as an extra way for the IRS to check that you and your employees have met their tax requirements.
4. Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return
The IRS requires that employers use Form 940 to report their Federal Unemployment Tax Act (FUTA) taxes, which are used to help workers who lose their jobs. More specifically, the IRS passes this revenue onto state unemployment insurance agencies and state job service programs.
The IRS bases the FUTA payroll tax rate on employee wages, and as of 2021, it stands at 6% of the first $7,000 paid to employees.
Here are a few important things to know about FUTA taxes and Form 940:
- Even though FUTA taxes are based on employee wages, employers, not employees, pay them at both state and federal levels. Employers also aren’t allowed to collect unemployment taxes from their employees’ wages or salaries.
- If your company owes the IRS $500 or more in FUTA taxes, you’re required to deposit them at least quarterly.
Employers have to file Form 940 annually, usually at the end of the year or at the beginning of the next calendar year (and typically no later than January 31st).
5. Form 941, Employer’s Quarterly Federal Tax Return
Unlike Form 940, which documents how much an employer paid in FUTA taxes, the IRS uses Form 941 to make sure employers withhold the correct amount of income, social security, and Medicare taxes from their employees’ paychecks. When filling out this form, you’re also required to report how much FICA tax you, as an employer, are paying for the quarter.
There are a few types of employers who don’t need to file this form with the IRS, including:
- Very small businesses that have an annual social security, Medicare, and withheld federal income tax liability of $1,000 or less.
- Seasonal businesses that don’t have any tax liability during the times of the year they don’t operate.
- Businesses that hire domestic employees or farm employees. Businesses that hire farm employees typically file a Form 943, also called the Employer’s Annual Federal Tax Return for Agricultural Employees.
Form 941 is usually due on the last day of the month that follows the end of the quarter. So, for example, the form for the first quarter of the year — January through March — is due on the last day of April.
Small business owners should also know that the IRS has revised Form 941 for the second and third quarters of 2022. They’ve updated it to reflect the expiration of many of the tax relief programs they implemented during the pandemic, such as the COBRA Premium Assistance Credit.
6. Form W-9, Request for Taxpayer Identification Number and Certification
Much like Form W-4, employers use Form W-9 to confirm and verify important employee information like their names, addresses, and tax identification numbers.
But unlike the W-4, the W-9 is typically used for independent contractors or third-party vendors. It doesn’t indicate how much employers should withhold in taxes because you don’t withhold taxes from your independent contractors’ paychecks. Instead, independent contractors who use the W-9 are typically responsible for their own taxes.
Employers can use the information on Form W-9 to create a version of Form 1099: a form that independent contractors use to file their income tax returns. However, you only need to do so if you meet the minimum income threshold, which was set at $600 as of 2021 and 2022.
Bear in mind: You don’t need to submit Form W-9 to the IRS, but as with Form W-4, you should keep copies filed away in your records in case you get audited.
7. Form 8027, Employer’s Annual Information Return of Tip Income
If you didn’t know before, you do now: Employers in the restaurant and food service industries are required to report tips to the IRS. And Form 8027 — the Employer’s Annual Information Return of Tip Income and Allocated Tips — allows you to do that.
Employers in the food and beverage industry also use this form to determine if they need to allocate more tips toward tipped employees. This is an important feature of Form 8027 because if the total amount of tips your employees report comes to less than 8% of your gross receipts for that same period, you’ll need to allocate them more tips to fill in the gaps.
In general, you only have to submit this form if the IRS considers your business a “large food or beverage establishment,” which means your business meets certain criteria:
- It’s located in the 50 states or the District of Columbia
- Tipping is customary for the type of food or beverage workers you employ
- You employ more than ten employees on a typical business day
To determine if you employ more than ten employees on a typical business day, you need to take what the IRS calls the ten-employee test. That doesn’t mean actually counting the number of employees working on a typical day. Instead, the IRS wants you to average the number of employee hours worked on a typical business day, which is why we highly recommend using the IRS worksheet to determine the average number of hours your employees work.
8. Form 1099-NEC, Nonemployee Compensation
Small business owners use Form 1099-NEC — Nonemployee Compensation — to report what they pay independent contractors, self-employed people, freelancers, and sole proprietors annually.
So, for example, if you’re a restaurant owner who regularly pays a third-party produce vendor to deliver fruits and vegetables, you’ll likely need to file Form 1099-NEC.
If you’re confused about this form, it might be because employers reported all nonemployee compensation in box 7 of Form 1099-Misc before 2020. But the IRS updated the 1982 version of the 1099-NEC to account for dual-filing deadline issues that employers were having with the 1099-Misc form.
With that in mind, the due date for filing Form 1099-NEC every year is January 31st, and you’ll also need to submit a copy to your independent contractors if they received more than $600 in compensation.
State tax withholding certificates
Different states have different payroll tax requirements, and some states don’t require you to pay income taxes at all. That means if your state is one of the nine with no income tax, the only state taxes you need to worry about withholding are your state unemployment or State Unemployment Tax Act (SUTA) taxes.
Having said that, your state may or may not require you to fill out a state Form W-4 to determine how much you need to withhold from your employees’ paychecks in state income taxes.
As of 2022, the states that don’t levy state income tax are:
- South Dakota
And if you’re an employer in the state of New Hampshire, you’re not required to tax employees’ earned income.
If you’re not sure about your situation, you should read through this reference to see if your state requires you to have your employees fill out a state tax withholding form.
Disclaimer: If you’re a business owner in need of complex tax assistance, you should consult a tax professional or accountant for guidance. The advice in this article was not written by a tax or legal professional and should in no way be taken as legal or tax advice.
Need some help with payroll forms?
If you’re a small business owner who relies on spreadsheets and calculators to carry you through tax time, you’re probably no stranger to stress. And it’s not just because you might make some accounting mistakes — you also worry about overlooking a payroll form or two.
If payroll forms leave you feeling overwhelmed, you don’t have to figure them out alone. You can outsource the process to Homebase payroll instead!
When you run payroll with Homebase, our platform will automatically calculate taxes and paychecks, send direct deposits to your team, and pay and file your payroll taxes for you. Plus, your employees get on-demand access to their pay stubs, W-2s, and 1099s in the Homebase app.
And when you use Homebase payroll, you can use our time tracking tools to automatically update your timesheets with the correct hours, wages, and tax withholding information when employees clock in or out, making payroll a breeze from the moment your employees show up for a shift to when it’s time to file your taxes.
FAQs about payroll forms
Is there a new 941 form for 2022?
Yes, the IRS has released a new Form 941 for the second and third quarters of 2022. This is because, during the pandemic, many of the tax relief programs that were implemented under the American Rescue Plan Act are now expiring. So, the IRS has updated Form 941 to account for those programs concluding. These updates affect any employers who are required to report the federal income, social security, or Medicare taxes they withhold from their employees’ paychecks.
One of the most important Form 941 changes has to do with the removal of sections regarding the COBRA Premium Assistance Credit, which was used to provide employees with relief during the pandemic. The IRS no longer includes this section in the updated Form 941 for 2022.
What are the benefits of having payroll software?
There are a few benefits to having payroll software, particularly for small business owners who are new to payroll processing and HR-related tasks. Some major benefits include:
- Less time spent on payroll during every pay period, which means employees consistently get their checks on time.
- Automatic time tracking and timesheets for hourly employees.
- Fewer accounting errors in the payroll process.
- Better compliance with state and federal labor and tax laws.
- Staying up-to-date with tax form changes, like Form 941 in 2022.
- Better employee retention due to accurate, timely paychecks.
What is the difference between a 941 and 940?
Employers use Form 941 to report Federal Income Contributions Act (FICA) tax withholding, like federal income, Medicare, and social security taxes. They’re required to file Form 941 quarterly.
On the other hand, employers file Form 940 annually on January 31st and use it to report Federal Unemployment Tax Act (FUTA) tax withholdings. The unemployment taxes taken from employment checks are used to fund state workforce agencies.