Set Up Payroll 101 In QuickBooks- Pay Your Employee and Your Taxes

Last Updated on December 23, 2020 by Editorial Team

The payroll setup process plays a major role to manage the finance section of any kind of business type. When the topic comes to QuickBooks, we found the simple procedure to set up payroll 101 in QuickBooks. As a QuickBooks user, you reached the right platform, here, you will get the proper guidance to set up QuickBooks Payroll 101.

Paying to the employees, paying taxes, and filing tax forms are the three main activities of payroll management. So you need to maintain all these before proceeding with the setup process. Here we have given a short description or these activities, have a look:     

  • Pay your employees- You need to calculate the gross pay and the taxes hidden with each pay period.
  • Pay taxes- Here, pay taxes that are hidden from the employee’s paycheck as well as the tax liabilities you used to acquire as an employer to the allotted government agencies.
  • File tax forms- As you know those forms must be processed every quarter. Suppose you have paid everything on your own you have to file tax forms that you need to report your liabilities.

Procedure to Pay your Employees Before your First Payroll

You have to sure that each employee has to fill each form which is given below:

  • I-9 form
  • W-4 form
  • State W-4 form if it is applicable 
  • Direct deposit authorization form if it is applicable

Then you also have to report your newly hired employees to your state agency. This process will be known as New Hire reporting. For this, you need to contact your state for information on how to handle this and which forms to be completed.

What is Type of Compensation

There are 5 types of compensation hourly, salary, commission, tips, and other compensations.

Hourly Compensation 

In hurley compensation, you are required to set the hourly rate for each employee. Even most of the employees set an hourly rate by estimating the state and the federal minimum wage limits, even the average market rate for the job/role, and the experience and education of an employee.

Salary Compensation

In salary compensation, wages are the set of amounts. Here the employee receives the same amount for each paycheck. As a criterion you have to determine the annual salary first, then you have to divide by the number of pay periods in a year for determining the salary amount for each paycheck.

The salaried employee hours used to vary commonly. So because of this, there is no real way to determine their hours except you are keeping track of their time through a time management system. This amount is the average hours a person used to work in a year.

Commission Compensation

In commission compensation, employees are paid by their performance. Even mostly these employees used to receive a percentage of their sales or they are also paid by the number of products or services sold. After that also federal and state laws require the employee to get paid somewhat the minimum wage.

Tips Compensation

In tip commission, the minimum wage for the tipped employees is much less than the minimum wage for the hourly employees. The tips can either be collected over the paycheck if the tip is paid by a credit card or it can be collected directly from the employee if the tip is provided in cash.

Other Compensation 

In other compensation, there are many other ways to pay your employees. Only you need to be sure with your state, business, and accountant for determining the types of compensation that are needed.

Some Methods to Pay your Taxes in QuickBooks

Payroll taxes add the taxes which are hidden from the employee’s paycheck and then taxes you will pay as an employer. These taxes carry the following:

  • Social security and medicare
  • Federal and state unemployment
  • Personal income tax of both federal and state
  • Miscellaneous another state taxes

Here the most payroll taxes like income taxes are used to apply all earnings. After all, some taxes have a wage gap that is the maximum annual earnings per employee that are subjected to that tax. These caps are assigned by the governing agency.

Social Security and Medicare For Paying Taxes

In social and Medicare, these are paid by both employers and employees. As an employer, you will refuse the employee part of the taxes, and also you have to pay the federally regulated amount for the company portion.

The tax rate for which the amount has been refused for social security is 6.2%. And then you have to apply to both employees and employers. This will be a tax with a wage cap which means that the tax is calculated only up to the maximum dollar amount of wages as per employee each year.

Now the employee tax rate for which the amount has been refused for Medicare is 1.45% for most of the employees. The employee Medicare rate increases to 2.35% on the wages over $200,000. Then the employer tax rate for Medicare tax applies at 1.45% disregarding wage amounts.

Special Tax Exemptions For Paying Taxes

There are some types of employees that do not get affected by one or more payroll taxes. But further, there are convinced portions of the regular employee’s wages that might be exempted from one or more payroll taxes such as tax-sheltered or pre-tax insurance plans save for both the employer and the employee money by exempting premium amounts for all the federal taxes and some state taxes. 

Suppose Intuit Online Payroll and QuickBooks Online Payroll automatically use to handle the special taxability for a certain wage type. But if you have employees who are eligible for the special tax exemptions, then you can announce that when you are setting up the employees in your account.

Federal Unemployment Tax Act (FUTA) For Paying Taxes

This act along with the state unemployment system provides for the payments of unemployment compensation to workers who have lost their jobs. But for 2020 and 2021 is the active FUTA tax rate which is 6.0%.

If your state has been borrowing funds from the federal government for covering the shortfalls in its unemployment insurance program for all the employers which are there in your state may be extracted to additional tax liability at the end of the year to refund those loans.

State Unemployment Insurance (SUI) For Paying Taxes

Here, the money that all the states maintain as a reverse for unemployment is funded through an unemployment insurance tax. But in most cases, the SUI is paid only by the employers. Now, the employees in some states you can take as New Jersey and Pennsylvania also used to contribute to SUI through their paychecks.

Even most states have entrenched a starting State Unemployment Insurance rate for new employers. Then after a designed period, employers are assigned an experience rate for which you can be higher or lower than the new employer rate.

Income Tax For Paying Taxes

In income tax, the amount of federal income tax held back from employees’ paychecks depends on their marital status, then the number of withholding allowances as they claim on form W 4, pay frequency, and their projected annual income.

Form W-4 which are Reported by the Employee For Paying Taxes

  • Filing Status- In this, the marital status dictates which tax table is used for calculating the income tax confining. So, for the federal income taxes, four filing status options are available as single, married filing jointly, head of household, and the married filing separately.
  • Withholding Allowances- Withholding allowance is also known as exemptions. The withholding allowances reduce the taxable income by a designated amount per allowance. Here, the IRS updates the allowance amounts periodically.
  • Additional amount to be hidden- in this the amount that is added to the income tax is calculated for each paycheck. Then it is in addition to the amount of income tax confining that is based on the employee’s filing status and the withholding allowances.

Even the W-4 forms are used to include several worksheets for estimating the most accurate projection of tax liability. But for some states, have similar forms for the state tax liability.

Some Other Payroll Taxes For Paying Taxes

In some other Payroll taxes, the State Disability Insurance or workers’ allowance is carried out by some states as taxes are possessed through Payroll. Even many states also have a tax paid jointly with the State Unemployment Insurance that is used to fund job training programs.

Methods of Paying Taxes in QuickBooks Payroll

If you are an employee then you can forward the taxes to the IRS and then to your state agencies by any method as by paying electronically or by using a form provided by the tax agency. But before examining the timing of tax deposit due dates or deposit frequency you have to know some of the payroll terms which are given below:

Method-1:- Constructive Receipt

The rules which are used for making employees responsible for Payroll taxes on the date they use to pay employees and disregard when they did the work associated with the paycheck. But if the employer pays employees to earn wages every day of the week.

Method-2:- Lookback Period

Here the reference period used by the IRS for determining your federal tax payment due dates, The IRS checks your tax liability during these 12 months and then regulates whether you are a monthly depositor or a semi-weekly depositor for the coming next year.

Method-3:- Deposit Period

The period during which tax liabilities accrue for each deposit due date.

Method-4:- Federal Taxes Deposit Schedules

2 deposit schedules apply to all the federal taxes other than the federal unemployment tax act. They are:

  • Monthly Depositors- If you’re a federal monthly depositor in 2021  and if your company federal tax liability during the lookback period 7/1/2019 through 6/30/2020 was $50,000 or less. But if the 15th falls on any weekend day or federal holiday, then the taxes will get due till the next banking day.
  • Semiweekly Depositors- Here if your lookback liability is greater than $50,000, at that time you will be a semiweekly depositor. Now you are able to pay taxes in the three banking days after the end of any semi-weekly period in which you can accumulate a liability. The IRS divides the week into two periods:
    • Wednesday, Thursday, and Friday
    • Saturday, Sunday, Monday, and Tuesday

Here the taxes accumulated during the Wednesday through Friday period are used to due on the following Wednesday. And then taxes are accrued during the Saturday through Tuesday period and are due on the following Friday.

Method-5:- Omissions to Deposit Schedule Rules

There are three main omissions for the monthly and semiweekly tax deposit requirements. They are:

  • Next-day deposit rule- Here, if you accumulate $100,000 or more in federal tax accountability at any mark during this deposit period, you must address taxes on the next banking day. These can result in a single Payroll or it can result in multiple Payrolls in a single deposit period which can be monthly or semiweekly.
  • Quarterly Exception- Suppose if you own less than $2,500 in civil taxes for a quarterly, then you have the option to choose to pay when you will file your taxes at the end of the quarter instead of deposits during the quarter.
  • Annual Exception- If the IRS has advised you in writing that you are a 944 aviator, and your total annual federal tax liability will be less than $2,500 then you can make your federal tax deposits annually.

Method-5:- Paying FUTA and SUI Taxes

In this, the FUTA taxes are paid on the last day of the month which will follow the end of each quarter:

  • April 30 for quarter 1 period
  • July 31 for quarter 2 period
  • October 31 for quarter 3 period
  • February 1, 2021, for quarter 4 period

If you accumulate less than $500 of Federal Unemployment Tax Act liability in a quarter then you do not need to deposit until the following quarter.

Method-6:- State Withholding Schedules

Same as the IRS, the states have established deposit schedules for paying income tax you have withheld from your employee’s paychecks. But when you will register with the state revenue agency, then they will notify you of your state deposit schedule.

Method-7:- SUI Taxes

Same as the FUTA, SUI taxes are addressed once a quarter disregard the employer size. Even in addition to the other taxes administered by a state unemployment commission such as Arizona’s job training tax or New York re-employment tax.

Methods For Filing Your Tax Forms

If you have given all your employees accurate paychecks and also paid all the Payroll taxes that you own then you have one more responsibility that is filing tax forms. This section will provide an overview of the types of form filings required to all employers.

Method-1:- Federal Forms

There are 4 types of federal forms. They are:

  • Form 941- In this, most employers file this tax form every quarter with the IRS. It also compares the federal Payroll taxes owned with taxes paid during the quarter for determining whether your payments were timely and also you are having a balance due.
  • Form 944- Here, the employers who have received written notice from the IRS can able to file form 944 annually instead of form 941 each quarter. It is used to report wages and also calculate federal Payroll tax accountability. Even the 944 form filers also pay taxes once a year.
  • Form 940- In this form, all the employers who used to pay FUTA file then this tax form at the year-end with the IRS. Same as form 941, it compares FUTA tax payments for determining whether you have given all the deposits timely. Even you have to see that you are having the balance due.
  • Form W2- In W2 forms, all employers use to provide a W2 form to each employee at the year-end and also earn records for incoming tax-filing aspiration. Are you also responsible for filing W2 forms with the social security administration.

Method-2:- State Forms

There are wages report and annual reconciliations are:

  • Wage Reports:- Here the report’s wages are paid to each employee for a given quarter. Even they used to combine sometime with the quarterly contribution report for calculating SUI tax owed. It is typically accompanied by SUI payment at the quarter-end.
  • Annual Reconciliations:- As you know some states require filing an annual reconciliation for the income tax at the end of the year. But this might or might not be attached by copies of employees’ W2.

What Are Paycheck Breakdown in Online And Desktop Payroll

Here, you will learn the breakdown of the paycheck in Online Payroll and in Desktop Payroll as:

Paycheck Breakdown in Online Payroll

Paycheck Breakdown in Desktop Payroll

Gross Pay for Paycheck Breakdown

The amount used to be owned to the employees without any assumptions or taxes taken out in gross pay.

  • Hourly Employees:-  Gross Pay = Hours * Rate
  • Salary or commission employees:- Gross = Flat amount

Here, a flat amount is an amount that is usually determined by figuring out the annual salary and also then dividing it by the number of pay dates in a year.

Taxes for Paycheck Breakdown

The owned taxes which are owned by the employees are taken out of gross pay. These used to include federal or civil income tax, social security, medicare, and the state income tax. If you are an employer then it will be your responsibility to hold and pay these taxes on the behalf of your employees. Now, you are accountable for employers owned taxes, which used to include civil and state unemployment.

Assumption other than taxes for Paycheck Breakdown

Deduction used to include health, vision, and dental insurance. But the employee contains involuntary assumptions or the deductions like garnishments like child support. 

Net Pay for Paycheck Breakdown

The employees used to take-home pay in the net pay. By this time all the taxes and deductions used to be taken out. The employee is able to cash their checks for receiving this amount. If they are set up for the direct deposit, and this is the amount that will be hitting their bank account.

Pay Period for Paycheck Breakdown

The period of the time for which the work was performed is the pay period. Pay periods are weekly, every week, or monthly.

Pay Date for Paycheck Breakdown

The pay date is the first day on which the employee can have the access to funds. Most of the time, this may be the day the employee can have checks in their hand or if they are set for the direct deposit, then this would be the date funds will be available in their accounts.

Here is the table which used to show what to do after every payroll and also at certain time frames:

EventAfter Every PayrollEvery MonthEvery QuarterAt Year-End
Pay federal income tax, social security, and medicareYou are a semi-weekly depositor, these taxes are due after every payrollIf you are a monthly depositor, then these taxes are due by the 15th of the following month
Pay state income taxIf you are a semi-weekly depositor, these taxes are due after every PayrollIf you are a monthly depositor then these taxes are due by the 15th of the following month
State unemployment payState unemployment taxes are due at the end of the quarter
Federal unemployment payFederal unemployment taxes should be paid at the end of the quarter once accountability for the year exceeds $500. If this brink is never met, then these taxes are due at the end of the year.Federal unemployment tax act taxes are due at the end of the year if the accountability never reaches $500.
File form a 941File form 941 at the end of every to reconcile your employee wages and federal taxes
File form 944If you are not 941 filers, file form 944 at the end of every to reconcile your employee wages and federal taxes
File state unemployment formsFile your state unemployment form with your SUI payment
File state unemployment formsFile your state unemployment form with your SUI payment
Quarterly state income tax forms should be filedFile quarterly state forms at the end to accommodate your employee wages and state taxes
File form W2File form W2 on or before February 1, 2021
File annual state income tax formsYear-end annual form agency due dates(The tax year 2020)
File form 940File form 940 at the end of the year to reconcile FUTA

Final Words

Hope this article is helpful for you. Here, you will know the methods for learning to set up Payroll 101 in QuickBooks. With the help of Payroll 101, you can easily pay your employees and can pay taxes easily. If in case after following all the steps you face any issue, then you can contact our QuickBooks ProAdvisor and get instant and best solutions.

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