Payroll and Employer Tax Services
Payroll tax is the one area where the penalties are personal and the deadlines are unforgiving. We run it so the deposits and returns are never the thing that goes wrong.
What this service covers
Payroll tax carries harsher consequences than almost anything else a small business deals with. The employee portion you withhold is trust fund money held on the government's behalf, and failing to deposit it can attract a penalty assessed against responsible individuals personally rather than the company. Deposit schedules are semi-weekly or monthly depending on your history, quarterly Form 941 and annual Form 940 have fixed dates, W-2s must reach employees and the Social Security Administration in January, and each state adds its own withholding and unemployment registrations. EvoTax runs the payroll, calculates and files the deposits and returns, produces the year-end forms, and keeps the worker classification question in view, since treating someone as a contractor who is really an employee is where the largest assessments originate.
Reviewed by Teja K, CPA · last reviewed . General information, not tax advice for your situation. How we research and review this.
Why payroll tax is categorically more dangerous than other business debt
Most business tax debt is the company's problem. Payroll tax is not, and the distinction is the single most important thing to understand before running payroll.
The income tax and the employee half of Social Security and Medicare that you withhold from a payslip is not your money. It is the employee's money, held in trust and owed to the government. When it is not paid over, the IRS can assess the unpaid trust fund portion personally against the individuals responsible for collecting and remitting it — typically owners and officers, and sometimes a bookkeeper with signing authority.
That assessment pierces the liability protection your entity provides. Forming an LLC or a corporation does not shield you from it. This is why a business under cash pressure should treat withheld payroll tax as the last thing it borrows against rather than the first: unpaid rent is a commercial dispute, and unpaid trust fund tax is a personal liability that survives the company.
If you are already behind on payroll deposits, that is a situation to address immediately rather than at year end. The exposure grows and the routes to resolve it narrow.
Form 941, Schedule B and the deposit schedule that decides which you file
Form 941 is the quarterly federal employment tax return. It reports the wages you paid, the income tax you withheld, and both halves of Social Security and Medicare. It is separate from actually paying the money — deposits happen on their own schedule during the quarter, and the return reconciles them afterwards. Confusing the two is the most common payroll filing error we see.
Your deposit schedule is monthly or semiweekly, and you do not choose it. It is determined by a lookback period: the total employment tax you reported over four earlier quarters. Cross the threshold and you move to semiweekly, where deposits are due within days of each payday rather than once a month. The schedule is set before the year starts, so it is knowable in advance rather than something to work out as you go.
Schedule B is where that distinction bites. It is required only of semiweekly schedule depositors, and it reports your tax LIABILITY on each day of the quarter — the day wages were paid — not the dates you made deposits. Filling it in with deposit dates is the classic mistake, and it produces a mismatch notice even when every deposit was made correctly and on time.
| Form | Covers | Frequency |
|---|---|---|
| 941 | Income tax withheld, Social Security and Medicare | Quarterly |
| Schedule B (941) | Daily tax liability — semiweekly depositors only | With each 941 |
| 944 | The same taxes, for the smallest employers only | Annual |
| 940 | Federal unemployment tax (FUTA), employer-paid | Annual |
| 941-X | Correcting a 941 already filed | As needed |
Form 944 exists so the smallest employers file once a year instead of four times, and it is the one people most often get wrong — because you cannot simply decide to use it. The IRS notifies you that you qualify, and until it does, you file 941 quarterly. Filing a 944 you were not told to file, or dropping quarterly 941s because you believe you qualify, generates failure-to-file notices for each missed quarter.
Where you send a paper 941 depends on your state and on whether you are enclosing a payment, and the IRS revises those addresses. Check the current instructions rather than reusing last year's envelope; a return posted to a superseded address is late if it arrives late. Filing electronically avoids the question entirely, which is what we do for payroll clients.
If you discover an error on a 941 already filed, correct it on Form 941-X rather than adjusting a later quarter to compensate. Netting a prior-quarter error into the current one leaves both quarters wrong and is difficult to unwind if either is examined.
What you withhold, what you pay, and what each is called
Payroll tax is several separate obligations that people collapse into one phrase, which is why the deposits and the returns get confused.
| Component | Who bears it | Notes |
|---|---|---|
| Federal income tax withholding | Employee | Withheld from wages, set by their Form W-4 |
| Social Security | Both — 6.2% each | Employee half is trust fund money; capped at an annual wage base |
| Medicare | Both — 1.45% each | No wage ceiling; an additional employee surcharge applies above a threshold |
| FUTA (federal unemployment) | Employer only | Never withheld from the employee |
| State unemployment | Employer, mostly | Rate is experience-based and varies by state |
| State and local income tax | Employee | Depends entirely on where the employee works |
Deposits and returns are different things and both have deadlines. You deposit the tax during the quarter, on either a monthly or semi-weekly schedule determined by your reported liability in a prior lookback period, with a next-day rule once accumulated liability reaches $100,000. Then you file Form 941 to report the quarter — a return, not a payment. Depositing late is penalised even when you eventually pay in full, which is why getting your schedule right matters more than getting the arithmetic right.
The platforms we run payroll on, and switching between them
We run payroll on Gusto, ADP, Paychex and QuickBooks Payroll. Which one suits you depends on headcount, how many states you employ in, whether you want benefits administration in the same place, and what your bookkeeping already sits in. QuickBooks Payroll is the obvious answer if your books are in QuickBooks and you have no multi-state complication, and rarely the answer if you do.
One thing is worth stating before any of that, because it is the most expensive misunderstanding in this area: a payroll platform calculating your taxes and filing your returns does not move the liability. The trust fund obligation described at the top of this page stays with the employer and with the individuals responsible for remitting. If a deposit is missed because a funding transfer failed, the account was short, or nobody read the notice, the exposure is yours and not the platform's.
That is not an argument against using one — we use all four. It is the reason somebody has to own the calendar and read the correspondence, which is the part people think they are buying when they buy software and usually are not.
- Switch at a year boundary if you possibly can, and at a quarter boundary if you cannot.
- Load year-to-date wages and withheld tax into the new system before the first run, then check a payslip against the old system.
- Agree explicitly which provider files the quarter the switch falls in. Both filing, and neither filing, are both common.
- Confirm the old provider has made its final deposits and filings, and keep access long enough to retrieve the records.
- Re-register nothing you do not have to. Your federal EIN and your state withholding and unemployment accounts belong to you, not to the outgoing provider.
Switching provider part-way through a year is where the avoidable damage happens, and it is worth planning rather than just signing up. Payroll tax reporting is cumulative within the year: the quarterly Form 941s and the annual W-2 are both built from year-to-date wages and year-to-date tax withheld. If those figures do not carry across correctly, the new provider reports from a partial base and the returns will not reconcile — which tends to surface in January on the W-2, the worst possible moment to find it.
If you have already switched mid-year and the figures look wrong, that is worth addressing before the quarter closes rather than at year end, while correcting a 941 is still straightforward.
Worker classification is where the largest bills originate
Treating someone as a contractor who is really an employee is the most expensive mistake available in this area, because it compounds: back employment taxes, penalties and interest for every affected worker and every affected period, and the exposure runs backwards rather than forwards.
Classification turns on the degree of control you exercise over how, when and where the work is done. It does not turn on what the contract says, on whether you issue a 1099, on how the worker is paid, or on the worker preferring to be a contractor. A written agreement describing someone as an independent contractor is close to worthless if the working relationship looks like employment.
This matters particularly to founders who started with offshore or family help and then formalised. A developer in India engaged directly and working to your direction is a genuinely different question from a US-based worker, because the US employment tax rules turn on where the work is performed — but "we have always paid them as a contractor" is not the analysis, and it is worth reviewing before someone else reviews it for you.
Remote employees create obligations where they live
A single remote hire in another state generally creates a payroll obligation in that state: registration for withholding, registration for unemployment insurance, withholding at that state's rates and filing that state's returns. It is triggered by where the employee performs the work, not by where your company is registered or where your bank is.
Two adjacent complications catch small employers. Some state pairs have reciprocity agreements that change which state's income tax is withheld, and a few localities levy their own income tax on top of the state's. Neither is difficult once identified; both are invisible until a notice arrives.
A remote hire can also create a business tax nexus in that state, which is a separate question from payroll and has its own registration and filing consequences. Worth knowing before the hire rather than after.
Where this comes from
- IRS — Employment Taxes for businesses: what is owed, withheld and reported
- IRS Publication 15 (Circular E) — Employer's Tax Guide, including deposit schedules and the $100,000 next-day rule
- IRS — About Form 941, Employer's Quarterly Federal Tax Return
- IRS — Independent contractor or employee: how the control tests are applied
- IRS — Understanding employment taxes, including trust fund obligations and personal liability
Benefits & What You Get
Deposits made on your actual schedule
We determine whether you are a monthly or semi-weekly depositor and meet that schedule, avoiding the steepest penalties.
All returns filed
Quarterly Form 941, annual Form 940, and the state withholding and unemployment returns each state requires.
Year-end forms handled
W-2s to employees and the SSA and 1099-NEC to contractors, filed by the January deadlines.
Multi-state registration
Remote employees create obligations in their state. We register and file where your people actually are.
Classification reviewed
We flag contractors who look like employees before an audit does, since that is where the largest bills come from.
How It Works
Set up and register
We register you for federal and state payroll accounts and establish your deposit schedule.
Run each cycle
We process payroll, calculate withholding and employer taxes, and produce payslips.
Deposit and file
We make deposits on schedule and file quarterly and annual returns federally and by state.
Close the year
We reconcile the year and issue W-2s and 1099s by the statutory deadlines.
Pricing
Processing, deposits and filings
Including multi-state where needed
Per quarter, you run the payroll
Per form, filed with SSA or IRS
Final pricing depends on the complexity of your case. Contact us for an exact quote.
Frequently Asked Questions
What payroll taxes does an employer pay?
You pay the employer half of Social Security and Medicare — 6.2% and 1.45% of wages, matching what you withhold from the employee — plus federal unemployment tax under FUTA and state unemployment tax. Separately you withhold and remit the employee's income tax and their half of Social Security and Medicare, which is their money held in trust, not an expense of yours.
When are payroll tax deposits due?
Either monthly or semi-weekly, determined by your reported tax in a prior lookback period. Monthly depositors pay by the 15th of the following month; semi-weekly depositors pay within days of each payday, on a schedule keyed to which day of the week you pay. A separate next-day rule applies once accumulated liability reaches $100,000. Getting your schedule right matters, because depositing late is penalised even when you pay in full.
What is Form 941 and when is it due?
Form 941 is the quarterly return reporting wages, withheld income tax and Social Security and Medicare tax. It is due by the end of the month following each quarter — 30 April, 31 July, 31 October and 31 January. It is a return, not a payment: the tax itself is paid through your deposit schedule during the quarter.
What is the trust fund recovery penalty?
Where withheld employee taxes are not paid over to the government, the IRS can assess the unpaid trust fund portion personally against individuals responsible for collecting and paying it — owners, officers, sometimes bookkeepers. It pierces the liability protection of your entity, which is what makes unpaid payroll tax categorically more dangerous than most other business debts.
Which payroll platform should I use, and what does it cost?
We work on Gusto, ADP, Paychex and QuickBooks Payroll, and the right one depends on headcount, how many states you employ in, and whether you want benefits administration in the same system. QuickBooks Payroll is the natural fit if your books are already in QuickBooks and you employ in one state. We do not publish third-party pricing because it changes, varies by plan tier and is often negotiated, but the structure is consistent: a monthly base fee plus a per-employee charge, with multi-state filing, benefits administration and year-end forms frequently priced on top. The number worth comparing is not the headline base fee — it is the total at your actual headcount in the states you actually employ in, which usually produces a different ranking.
If my payroll software files my returns, am I still liable?
Yes. This is the most expensive misunderstanding in payroll. A platform calculating the tax and submitting the returns does not transfer the obligation: the withheld income tax and the employee share of Social Security and Medicare are trust fund money, and the IRS can assess the unpaid portion personally against the people responsible for remitting it — regardless of which software was meant to handle it. If a deposit is missed because a funding transfer failed or nobody read a notice, that is your exposure. Software removes the arithmetic, not the responsibility, which is why someone still has to own the deadlines.
Can I switch payroll provider in the middle of the year?
You can, and it needs planning rather than just signing up. Payroll tax reporting is cumulative within the year — the quarterly Form 941s and the annual W-2 are both built from year-to-date wages and year-to-date withholding — so those figures have to be loaded into the new system before the first run, or the returns will not reconcile and you will usually discover it in January on the W-2. Switch at a year boundary if you can and a quarter boundary if you cannot, agree explicitly which provider files the quarter the change falls in, and make sure the outgoing provider has completed its final deposits and filings. Your EIN and state accounts stay with you, so there is generally nothing to re-register.
Can I treat my workers as contractors instead of employees?
Only if they genuinely are. Classification turns on the degree of control you exercise over how, when and where the work is done, not on what the contract says or whether the worker prefers it. Misclassification exposes you to back employment taxes, penalties and interest for every affected worker and period, and it is an area of active enforcement. If a worker looks like an employee in substance, treating them as a contractor is a liability rather than a saving.
I have a remote employee in another state. What changes?
Generally you acquire a payroll obligation in that state: registering for withholding and for unemployment insurance, withholding at that state's rates, and filing that state's returns. It is triggered by where the employee performs the work, not by where the company is registered. Two things catch small employers — some state pairs have reciprocity agreements that change which state's income tax is withheld, and a few localities levy their own income tax on top. A remote hire can also create a business tax nexus in that state, which is separate from payroll and has its own filings. All of it is manageable once identified and invisible until a notice arrives.
I pay a developer in India. Do I run US payroll for them?
Usually not, because US employment tax generally turns on where the work is performed, and work performed entirely outside the US by someone who is not a US person typically falls outside US payroll withholding. That is the common answer and not a universal one — it changes if the person is a US citizen or green card holder living in India, if they spend working time in the US, or if the relationship is really employment dressed as contracting. There may also be Indian-side obligations on your engagement, which is a question for the India team rather than this one. Worth confirming against your actual facts rather than assuming either way, because the cost of getting it wrong runs backwards over every period.
Background reading and tools
The guides cover the federal treatment in detail. The calculators let you check a number before you commit to anything.
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