If your organization has been operational for a while, you’re no doubt well acquainted with employment taxes. However, it’s important to stay vigilant regarding compliance.

Adhering to the rules isn’t only about avoiding audits and financial penalties, which are ever-present possibilities. Compliance is essential for running a financially sound and trustworthy organization. Let’s look at some simple ways to tighten up your compliance process.

Make a checklist

As you know, employers must report and deposit certain employment taxes regularly. To ensure you don’t miss anything, create a checklist that includes your primary obligations:

• Federal income tax withholding (FITW),
• Social Security tax (both the employer and employee portions),
• Medicare tax,
• Additional Medicare tax, and
• Federal unemployment tax (FUTA).

Typically, an organization reports FITW, Social Security, Medicare and Additional Medicare taxes on Form 941, “Employer’s Quarterly Federal Tax Return.” FUTA is reported on Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return.”

Mark your calendar

True to its name, Form 941 is filed quarterly and due by the last day of the month following the end of each quarter. So, be sure you’ve marked your calendar or, better yet, set up electronic reminders. Typically, the due dates for filing this form are:

1. April 30 (first quarter),
2. July 31 (second quarter),
3. October 31 (third quarter), and
4. January 31 (fourth quarter).

If any deposit due date falls on a Saturday, Sunday or legal holiday, you may deposit on the next business day.

For smaller employers with low employment tax liability, the IRS will allow for the annual deposit and filing of these taxes. Such employers use Form 944, “Employer’s Annual Federal Tax Return.”

Set a schedule

While Form 941 is filed quarterly, employment tax deposits are typically submitted more frequently unless the employer is a Form 944 filer. Be sure you’ve established a firm schedule appropriate for your organization.

Frequency can either be semiweekly or monthly. Which one is determined through a “lookback period.” This is the total tax liability for an employer for the previous four quarters — July 1 of the second preceding calendar year through June 30 of the preceding calendar year.

If an employer reports $50,000 or less of Form 941 taxes for the lookback period, it’s a monthly schedule depositor. On the other hand, if an employer reports more than $50,000, it’s a semiweekly schedule depositor.

Beware of higher liability

Make sure you’re aware of the “higher liability” exception. It applies to deposit schedules if an employer accumulates tax liability of $100,000 or more on any day during a deposit period. This often occurs around bonus time for some employers or when pay increases kick in.

When this happens, the employer must deposit the tax by the close of the next business day, regardless of whether it’s a monthly or semiweekly depositor. And if the employer is a monthly depositor, it becomes a semiweekly depositor.

Watch carefully

Mismanaging employment taxes can hurt your employer brand and damage your organization’s reputation in its industry or marketplace. So, keep a close eye on your compliance process to ensure it isn’t showing signs of breaking down.

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