10 Payroll Tax Forms Your Small Business Needs to Know
by Ryan Lasker | Published on May 18, 2022
Before starting your first business, you probably only thought about filing taxes once a year. As you cross off April 15 on the calendar, tax forms and deductions become a distant memory, only to be revisited in the new year.
Business owners know of a different reality where it’s seemingly always tax season because of employment tax filings and estimated tax payments. Let’s explore the payroll forms that every owner of a business with employees needs to know.
Overview: What is a payroll form?
Payroll forms serve two purposes: to collect information related to employee compensation and to report employment tax payments to governments.
It’s a bit gauche to ask a new hire to write down their Social Security number (SSN) on a sloppily ripped piece of cash register tape, but when you hire workers you do need to gather their personal information to make sure they’re eligible to work legally. Instead, you hand the new worker a payroll form that neatly collects everything you need to know before running payroll.
Running payroll involves withholding and paying employment taxes, including federal income tax withholding and Federal Insurance Contributions Act (FICA) taxes. Every quarter, you’re required to remit a payroll form that makes sure you’re accurately calculating payroll taxes.
10 types of payroll forms for small businesses
The forms we’re discussing today are all federal forms, but many of them have state and local equivalents. Check with your state and local tax authorities for a list of required payroll filings.
1. Form I-9
Form I-9 should be on new employees’ desks before they walk in the door on day one. The U.S. Citizenship and Immigration Services (USCIS) developed the form to help employers verify a person’s legal eligibility to work.
Your new employee must submit the I-9 within the first three days of employment, along with documents that prove tax residency, like a U.S. passport or permanent resident card. Keep employees’ Forms I-9 for three years or one year after they leave your company, whichever is longer.
2. Form W-4
Another piece of paper to place on a new hire’s desk: Form W-4. Before you can run payroll for new employees, you need to know how much to withhold from their paychecks for income taxes.
U.S. taxpayers are expected to pay income taxes as they earn income. The self-employed make quarterly tax payments and employees have their employers keep a portion of each paycheck to remit on their behalf. A person’s federal income tax liability depends on earnings, dependents, and marital status, among other factors. Employees tell their employers how much to withhold from each paycheck for federal taxes using Form W-4.
States also have employee wage forms that serve the same function as Form W-4.
3. Form W-2
Every January, you’re required to file a Form W-2 for each employee who earned at least $600 in the previous year. Unlike Form W-4, employers fill out and file Form W-2.
The document presents an employee’s gross pay including fringe benefits and tips, federal and state tax withholding, and contributions to employer-sponsored retirement plans.
You send Forms W-2 to employees, state tax authorities, and the Social Security Administration (SSA).
Businesses can lean on payroll software to generate and issue Forms W-2. Otherwise, you can create them yourself using tax software. Employees must receive their Forms W-2 by Jan. 31 or the next business day if Jan. 31 falls on a weekend or holiday.
4. Form W-3
Analog W-2 filers need to attach transmittal Form W-3 to their Form W-2 filings with the SSA. Form W-3 summarizes all the earnings and taxes reported on each employee’s W-2. It acts as the cover page in the packet of W-2s sent to the SSA.
Electronic filers don’t need to file Form W-3 since the online filing system automatically generates Form W-3. Like Form W-2, Form W-3 is due to the SSA by Jan. 31.
5. Form 1095-B
In every single respect, health insurance is confusing. Form 1095-B and its cousins 1095-A and 1095-C are tax alphabet soup for health insurance.
Not every small business owner needs to worry about creating and filing Forms 1095. Form 1095-B is for the recipients of small business-sponsored health insurance whose coverage exceeds the Affordable Care Act’s (ACA) definition of “minimum essential coverage.” In most cases, your insurer will generate and file Forms 1095-B along with summary Form 1094-B. Talk to your insurer before counting on it, though.
Employees use 1095-B to verify that they have health insurance when filing their taxes. It’s a holdover from the early years of the ACA, where taxpayers paid penalties for not having sufficient coverage.
Since the insufficient coverage penalty was lifted, the federal government no longer requires that Form 1095-B be sent to every covered employee, though it may still request the form. Some states and territories, like the District of Columbia and New Jersey, require health coverage reporting, so employees there will need it.
Employees of “Applicable Large Employers” will receive a 1095-C instead. Those who receive health insurance through the healthcare marketplace will get a 1095-A.
6. Form 940
In the first few months of each calendar year, you might notice a few extra taxes on your payroll tax report. One of them is the Federal Unemployment Tax Act (FUTA) tax, which funds the administration of states’ unemployment programs.
FUTA, an employer-paid tax, applies a 6% tax on the first $7,000 of an employee’s eligible wages. However, the FUTA rate slides down to 0.6% when a business pays its State Unemployment Tax Act (SUTA) taxes, costing businesses just $42 per employee each year.
Not all states and territories qualify for the full 5.4% credit, so check with the Department of Labor before counting on the full FUTA credit.
Every January, businesses file Form 940 to report the prior year’s FUTA payments. If you paid too much in FUTA last year, you can ask for a refund on Form 940 or to apply the overpayment toward next year’s FUTA liability. You can also rectify underpayments by making a payment with Form 940.
7. Form 941
Now you know about reporting FUTA every year. What about all the other employment taxes you remit throughout the year? Enter Form 941.
Small businesses file Form 941 quarterly to report the other federal taxes listed on their payroll tax report: FICA taxes and employee federal income tax withholding. Like 940, the form figures out whether you overpaid, underpaid, or got your FICA taxes liability on the nose. You could also identify overpayments and underpayments by conducting an internal payroll audit.
Small businesses whose employment tax liability is under $1,000 can file the annual version of Form 941, Form 944.
8. Form W-9
Consider these final three forms a bonus since tax sticklers would argue that contractor-related forms aren’t technically considered payroll tax forms.
Form W-9 is the contractor’s version of Form W-4. It collects all the information you need to report independent contractor compensation: Name, address, SSN or employer identification number (EIN), and entity tax status.
The document also asks the taxpayer whether they’re subject to backup withholding. In the vast majority of cases, you’re not supposed to withhold any part of a contractor’s fee for taxes. However, you must submit 24% of a contractors' pay to the IRS when they refuse to furnish a valid tax identification number or tell you on W-9 that their earnings are subject to backup withholding.
Get your contractors to fill out W-9 before they start working for you.
9. Form 1099-NEC
Think of 1099-NEC like the independent contractor’s version of Form W-2. Revived to replace 1099-MISC for independent contractor reporting, Form 1099-NEC documents payments of $600 or more that you made to a contractor last year.
File 1099-NEC with the IRS and share them with contractors by Jan. 31. States set their own deadlines for receiving 1099s, and some don’t even want them.
Businesses that prepare 250 or more Forms 1099-NEC in one tax year are required to file them online using the IRS e-filing system.
10. Form 1096
Form 1096 summarizes all the 1099 payments you made last year. It’s only required when you’re filing on paper. Avoid this step, postage costs, and papercuts by filing your 1099s using tax software.
3 best practices for filing payroll forms for your business
Boy, do I have some hot tips for you today. Did you know that the IRS has a tax deadline calendar that you can subscribe to?
Mind the deadlines
The IRS penalizes late filings more than it does late payments. Download the IRS tax calendar and sign up for email notifications to not miss a payroll filing.
Check your software’s work
Software is garbage in, garbage out. Putting in bad information leads to erroneous tax filings. Accurate inputs are key in making your accounting, payroll, and tax software work for you.
Before an IRS payroll form deadline, double-check your software for up-to-date personnel information. You don’t want contractors calling you on Feb. 2 saying they never received their 1099s because you never updated their mailing addresses.
Create a payroll recordkeeping system
You’re required by law to hold on to payroll records for a specific amount of time. Since payroll info gets pretty personal, it’s worth creating a document management system that secures the documents for as long as they’re in your possession.
And we’re just getting started
We just rattled off 10 payroll tax forms, but they’re by no means the only ones. There are corrective forms for fixing payroll tax form mistakes, among a slew of other payroll tax forms used in rare situations. A tax professional can identify all the documents you’ll need to run your small business’s payroll.
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