 Hello and welcome to this session in which we would look at reporting payroll taxes. In the prior session, we discussed payroll taxes such as federal payroll taxes, FICA Social Security and FICA Medicare. We learn about how they determine how much money they take from your paycheck. In this session, we are going to look at what does your employer do after they take the money? Well, after they take the money, they have to submit the money to the government and they have to report that information. They use form called 941 and they have to submit your payment. How often, how and when this is what we'll be discussing in this session. Before I start, I would like to remind you that if you are a CPA candidate or an accounting student, I strongly suggest you check out my website, farhatlectures.com. I don't replace your CPA review course. I can be a useful addition to your CPA review course. I can explain the material differently and by doing so, adding 10 to 15 points to your knowledge which in turn would help you pass the exam. Your risk to try me is one month. Your potential gain is passing the CPA exam and if not for anything, take a look at my website to find out how well your university is doing for the exam. I do have resources for other courses as well. Please connect with me on LinkedIn if you haven't done so. Also like this recording, share it, connect with me on Instagram, Facebook, Reddit, and Twitter. So what are we discussing here? We are discussing the employer withhold payroll taxes. When they take that money from you, when they take that money from your paycheck, what do they do with it? When do they deposit it and how to send it? How do they send it to the federal government? Well, we're going to try to answer these questions. Well, how do they send it? It's easy. They use something called EFTPS Electronic Federal Tax Payment System is a free service provided by the Department of Treasury. Now you have to enroll in the system. By the way, I am enrolled in the system and when I was in practice, I used to use the system on a practically daily basis because if you work in a CPA firm and some of you eventually would work in a CPA firm, a lot of companies, medium and large companies, what they do, they outsource their payroll to their CPA firm and the CPA firm will make all the payroll payments for them. Therefore, you'll have to enroll and once you're ready, you make a payment. Once you click on make a payment, you tell them whether you are the company or an agent of the company and it's just you follow the screen and you submit the payment and you have an identification number. It's pretty straightforward system, but it's a very valuable skill to have. So this is how they deposit the payment. So when do they deposit the payment? There are many schedules, but we're going to be discussing first the most common. Employers typically deposit taxes either monthly or semi-weekly. So sometime you have to do monthly, sometime you have to do semi-weekly. What happened if you are a new employer? How would you know whether you are a semi-monthly or monthly or semi-weekly? You are assumed to be monthly scheduled deposit or accept an unusual circumstances. Let's assume you have a lot of money withheld, then it's unusual circumstances. There's called a look back period. The look back period is they look back at four quarters, then they determine whether you are monthly or semi-weekly. For example, for 2020, the 2020, the look back period runs from the quarters starting July 1st till June 30th. So simply put from mid 2018 to mid 2018. And here's what happened. If your payroll taxes during that period, all your payroll taxes were less than 50,000, you are considered to be a monthly depositor. We'll talk about monthly depositor. Guess what? If they're more than, I'm sorry, if they're less than 50 or monthly depositor, if they're greater than 50, you become a semi-weekly scheduled depositor. Simply put, think about it. If you're withholding too much money, the government wants their money earlier. So less than 50,000, we're going to wait. You're considered monthly depositor. If you are withholding more than 50, guess what? In the quarter, we want our money semi-weekly. They want their money earlier, and that makes sense. So monthly depositors, they submit their payment through the EFTPS. Well, you could still submit a check, but who wants to do that? On or before the 15th day of the following month, that's how it works. So what do you submit to the government? Well, you're going to submit to the government. Simply put, three things. The social security and Medicare tax would help from the employee. Remember, the employee is one, then the employer share as well, plus federal income tax. Whoops. How come the federal income tax is not there? Well, also, okay, federal income taxes. You submit those three things. So ABC company is a monthly depositor. For payroll paid during the month of April, the company would help 4,000 in income taxes, 2,500 in social security, and 863 in Medicare. So that's what happened in April. Guess what? The company will have to pay by May 15th these amounts. Remember, they were held for social security, 2,500 for Medicare 863. They have to take what they took from the employee and they match it. Therefore, they have to send the $4,000, which is the federal tax withheld. They have to send the employee social security, EESS, employee Medicare, employer SS portion, and employer Medicare. Simply put, all of this goes to the same place, which is Uncle Sam. Let's look at a semi-weekly schedule. Again, if you are taking, if you are withholding too much money, they won't do money earlier. So if your payroll is paid on Wednesday or Thursday or Friday, so if you pay your employees, Thursday and Friday, this is when you take the money, deposits must be made by the following Wednesday. To simply put, if you pay them by Friday, you have to pay by Wednesday. If you pay them by Thursday, you have to pay them by Wednesday. If you pay them Wednesday, you have a week to pay Wednesday. Or if you are, if you pay your employees Saturday, Sunday, Monday or Tuesday, notice specific dates, then you have to pay no longer than Friday. That's fine. So just, you need to know the dates. And again, what happened is, if you work in this industry, you will create a schedule for yourself. You might be dealing with four or five different companies at the same time, or maybe more. You could be responsible. I remember I was responsible for 10 to 15 companies. That was part of my duty, basically to make sure I submit when I was starting in a CPA firm to submit their payroll taxes. So you really have to have a good calendar. I used to use my physical calendar. I used to use, there was no Google Calendar back then. I used to use an electronic calendar, but not Google Calendar. And I would have all sorts of notes for myself to remember that I need to submit those payments because it's critical that you do that on time. Let's assume XYZ company, which pays its employees every Friday. So Friday goes right here. So they have to pay them Wednesday, the following Wednesday in the semi-weekly scheduled deposit. When the company paid its employees on Friday, their payroll of 20,000 on that date. Guess what? No later. You can pay it earlier, but no later than Wednesday. You have to make that payment. You have to make that payment. Again, I used to have even, when I started, I used to even have my phone, I used to have a flip phone. And you remember the flip phone used to have an alarm clock. So my alarm clock would go off several times throughout the day. And some employees did not like it because they did not like my alarm going on, but that's fine. We dealt with that. Remember the payroll date is the payroll when the payroll is paid, not the end of the payroll period. It's when you paid your employee. So if Nicholas company, the monthly scheduled depositor and pays its employees on the first date of the month of the payroll ending on the last month of the prior period, well, the payroll is when the payroll paid is the date. So payroll tax would help on June 1st. Okay, June 1st is when we took the money, our due then no later than July 15, 15th of the following month, even though the payroll was for the week performed during May. So the employee worked in May. It doesn't matter when they work. It's when did we pay them? We pay them in June, 15th of the following month you have to make the payment. Okay. In other words, although the payroll period end in May, so you think, well, we need to submit the money by June 15. No, we pay them June 1st, therefore July 15th. If the day on which taxes are due is a weekend or a holiday, taxes are payable the next banking day. So that's obvious. Semi-weekly scheduled deposit have at least three banking days to make a deposit. So if a banking day is a holiday, it means the employer does not get three banking days, the payment is extended. That's all what it is. What happened if you're too large or too small? If you're taken too much money or you're not, you're a small company. And I dealt with many small companies. If your payroll tax liability is less than 2,500, you can pay this money at the end of the quarter. And I had a lot of companies like this, maybe 25 companies, they made their payment, one payment at the end of the quarter, 2,500 because it's themselves. They were self-employed and they paid themselves a little bit of money. Okay. And you don't have to the EFTPS, we would still do EFTPS. You will submit the payment when you fill out your 941 voucher and you submit the payment. We submitted the payment through EFTPS, but that's beside the point. Okay. Now, what happened if you're too large? Too large means what? You have payroll taxes, $100,000 or more. So you would help money from your employees and large corporations do that. Large corporations, they have wages in millions and hundreds of millions sometime. So they take a lot of payroll taxes. As a result, the government is not going to wait a few days or a week or a month. They want their money immediately. So if it's a large company, $100,000 or more, I never dealt with this. They must make the deposit the following day. The government wants their money. Okay. Because that's a lot of money. Okay. Whether you're monthly or semi-weekly scheduled depositor, once you get to that number, you have to pay the following day. Okay. For example, if 100,000 of taxes are accumulated on Monday, you have to deposit that money by Tuesday. Okay. If on Tuesday, you would help an additional 90,000, then you have, remember, if it's Tuesday, you can pay it by Friday. You have till Friday to pay it. An employer who's a monthly scheduled depositor and accumulates 100,000 of tax liability on any day becomes a semi-weekly. If you were monthly, but you accumulate this amount, you become semi-weekly scheduled depositor on the next day and remain so for at least the rest of the calendar year until they go back and look at the look-back period. So this is just, you know, for large, large companies. Now, what happened if you don't make your deposits on time? There are penalties, different type of penalties. This is a list of them. You just need to know what they are. In the real world, you'll have to deal with them. Again, most companies, they outsource their payroll to either payroll company or CPA firm that does this work. Where I work at my CPA firm, we had our own payroll company. One of the partners had his own payroll company, so we handled payroll for our customers as well. So let's take a look at a comprehensive example to see how we can fill out the 941 in schedule B. So we're dealing with Watson Company. This is their EIN number. This is their address. The following payroll for the quarter ended March 31st. This is they have six employees, gross wages of $300,000. They took federal income tax for the quarter, $24,000. Wages subject to Social Security, $300,000. Wages subject to Medicare, $300,000. Now, this example is easy. Why? Because they told you they paid them $300,000, and all the wages are subject to Social Security. Now, in the real world, what you have to do, and this is, you know, we would have a formula. Basically, some employees remember if they exceeded the $137,700, when I was working, it was around $105,000, believe it or not. The limit was around $105,000. But if they exceed $137,700, if they exceed this, even less than $105,000, it doesn't matter. So remember, if some employees already exceeded $137,000, well, this is the first quarter, but some employees could exceed $137,700,000. Some of the wages may not be subject to Social Security, but for the sake of simplicity, we're going to assume they are all subject. Also, assume that the company pay wages on a semi-monthly basis and $50,000 per pay period. Deposits for the quarters were $69,800. So they made deposits. Remember, you have to send your payment, make the deposit. And this is how we're going to compute the deposits. They have $50,000 in wages per period times 12.4. Remember, 12.4 is for both employee and employer, each pay 6.2. Social Security, $6,200 Medicare, $50,000 times 2.9, $1.45, $1.45, $1,450. We're going to assume that the federal income tax is $4,000 per pay period. So total tax liability per period. So every time they pay the employees, they have a tax liability of $11,650. Total tax liability for the quarter was $69,600. They deposited only $69,800. They are short $100. Let's take a look at this information. How would it be filled on a form? Again, this is a simple example, but it's a starting point. This is how you start to get familiar with the forms. And believe it or not, I like payroll taxes. Payroll taxes were clean, not like individual taxes. Payroll taxes, they repeat. It's basically the same numbers. Individual taxes are a little bit more complicated because they change from year to year. Okay, let's take a look at the form. Number of employee 6 wages were $300,000. Wages and other compensation. Federal income tax was held $27,000. Now we have to look at taxable Social Security wages. Again, for this example, we assume it's the same. It doesn't have to be the same, but we assume it's the same. So of all the $300,000, it's all subject to Social Security. And all of it subject to Medicare, that's always the case. This number would always equal to this number because wages are subject to Medicare. And if there's, and we're not going to get involved with the 0.9% additional tax, if any employee earned more than that, more than $200,000 or $250,000, there's an additional 0.9%. We talked about this in the prior session. It doesn't matter. Now add column 2 from 5B, CD in all of them. So 37 plus 37, 200 plus 87, that's 45, 900, which is FICA taxes. Total taxes before adjustments. We're not going to have adjustments. We're going to take the 24, the federal income tax plus the FICA, which is 69,600. Again, this is quarterly federal tax return. It doesn't mean you pay it quarterly. Remember, you pay depending on your pay schedule. You could be paying, it could be a monthly depositor or a semi-weekly depositor, but at the end of the quarter, 941, you have to complete a 941 for the quarter. This is basically a reporting form, a reporting form. And if you are short, you will pay, which is, remember, we are short in this example. So the company paid, the company is responsible for 69,900, but they only paid 69,800. They are short for $100. So this is basically, again, a reporting form. Page 2, you don't have to worry about it. You can take a look at it. Schedule B4, 941. You show the payment they pay on the 15th of every month. And the total liability was 11,650 at the 15th of every month, 11,650. Remember here, 11,650. And what they did, they took it and they times, times six. This is how they determined this. Somehow, we were short $100. Not a big deal. We're going to send the payment or we can go to the EFTPS and send the $100 difference and close the quarter. Again, at the end of this recording, I invite you strongly to visit my website, farhatlectures.com, if you are a CPA candidate, or if you are looking to improve your career and get those extra 30 credit for your CPA. Good luck, study hard, and stay safe.