If you have ever made a mistake on your quarterly Federal 941 (employment tax) deposit, you have probably experienced a relentless attempt by the IRS to drive you insane with their never ending, mildly chastising, and utterly unhelpful notices and vague instructions on how to fix the problem. This annoyance is often compounded by penalties and interest.
I think we can all agree that we don’t want to go there. My goal with payroll deposits is to get it 100% right, 100% of the time. It should be your goal, too. And you can do it by following this step-by-step process.
Step 1. Run the payroll report for the payday that you want to make a tax deposit for. In QuickBooks, the report you want to run is the Payroll Summary. Run it from and to just the date of the payday (for example, March 31, 2017 to March 31, 2017).
Notice the highlighted numbers – we’ll come back to those.
In Xero, run the Payroll Activity Summary, just for the date of the payroll. Again, notice the highlighted numbers.
Step 2. Figure out which quarter the payday falls into. This deceptively simple task often requires staring at a calendar, counting on fingers. We call that “accounting.” Remember that the quarter is determined by the paycheck date, not the pay period that was paid. So if your pay period ended on March 31, but your checks are dated April 5, your tax deposit goes in Quarter 2.
So think it through. Take as much time as you need. Now, write down your answer on your payroll report.
Step 3. Highlight the numbers on your payroll report that correspond with the examples above. You should have five numbers highlighted (sometimes six, if there is any Additional Medicare for very high earners.)
Federal Income Tax (aka Federal Withholding)
Employee Social Security
Employer Social Security
Step 4. Add these five numbers up and write down the result right there on your payroll report. (On the QuickBooks report, the employee taxes show as negative numbers. Pretend they are positive. In the example above, the total is $3611.50.)
Step 5. Log into your EFTPS account to Make a Payment. Select the 941 Employers Federal Tax from one of the three (!) ways you can select the form. (Why do they give you three ways? Because it is the government. ) On the next screen, select Federal Tax Deposit. Go to the next screen, and look at the stuff you wrote down on your payroll report.
Step 6. Enter the total payment, enter the quarter, and enter the year. Take a moment to double check that you got the quarter and year right. Believe it or not, this is one of the most common mistakes that people make. Enter the settlement date, which will depend on your deposit schedule (a topic for another day.)
Step 7. Go to the next screen, and enter the three types of tax your are paying:
Social Security (employee and employer)
Medicare (employee and employer)
Tax Withholding (employee Federal Withholding)
Next, you’ll have a chance to very everything and then make your payment. Print a nice pdf of your deposit and file it away on your computer. I recommend a naming convention like this example: “2Q17 April 5 EFTPS 941” or something that makes sense for your pay schedule.
Finally, you get to log out. The prompt always makes me smile. I picture some nerdy programmer from India writing this back in the last century. Who talks like this?
That’s it. Follow these seven steps each and every time, and I pretty much guarantee that your deposits will be 100% perfect.