Ben Franklin famously said that only death and taxes are certain in life. Given this certainty, business owners should prepare themselves for their eventual tax bills. It is important (and legally required) to maintain business tax paperwork known as payroll forms. This guide will teach you about the payroll forms you need as an employer and when to use them.
Payroll forms are federally mandated documents that all employers must maintain. Choosing not to file them can mean expensive fines and penalties. Even if you do file the appropriate paperwork, error-filled forms can lead to additional fines. In extreme cases, they trigger costly, drawn-out tax audits.
Additionally, payroll forms help confirm that all your recorded calculations are correct. For instance, if you generate a report on all your annual employee payments and the numbers don’t match your quarterly reports, you’ll know something’s wrong. You can then find the error and rectify it before it leads to more mistakes.
The most important types of payroll forms are summarized in the table below. You can also find in-depth explanations of each payroll form below the table.
|Form name||Purpose||Who completes it||Due date|
|Form W-4||Determines employee federal income tax withholding||Employee||First date of employment|
|Form W-2||Indicates annual gross wages and tax withholding||Employer||Jan. 31 of the following calendar year|
|Form W-3||Summarizes all employee W-2s||Employer||Jan. 31 of the following calendar year|
|Form W-9||Collects contractor tax identification numbers||Contractor||Shortly after the first project assigned|
|Form 1099-NEC||Indicates annual total payments made to a contractor||Employer||Jan. 31 of the following calendar year|
|Form 940||Indicates total annual FUTA tax payments||Employer||Jan. 31 of the following calendar year|
|Form 941||Indicates total quarterly tax payments||Employer||The final day of the month after a quarter|
|Form 944||Indicates total annual tax payments||Employer||Jan. 31 of the following calendar year|
|Form 1095-B||Indicates employee coverage under a self-insured healthcare plan||Employer|
|Form 1094-B||Summarizes all employee 1095-B forms||Employer||Whenever you file your 1095-B forms with the IRS|
|Form 1095-C||Indicates ALE employee coverage under a third-party healthcare plan||Employer|
|Form 1094-C||Summarizes all employee 1095-C forms||Employer||Whenever you file your 1095-C forms with the IRS|
W-4 forms are how you’ll determine the federal income tax rate for your employees. You’ll then withhold the corresponding percentage of the employee’s wages every time you pay them. You will rarely remit this payment immediately – instead, you’ll regularly send all payroll taxes for the quarter to the IRS in one batch. To verify your payroll calculations, keep copies of your employees’ W-4 forms on file.
Have employees file completed W-4 forms with you on or before their first day of work. This should take no more than five minutes, as the form is not complicated and asks for very little information. W-4 forms are to be used solely with employees, as contractors must complete a different form. We’ll explain this form soon, but first, brush up on the differences between employees and contractors.
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Each employee should receive a W-2 form that summarizes how you used their W-4 to withhold their taxes over the calendar year. The form will display the employee’s annual gross wages and taxes withheld. You must send a copy to the employee and the Social Security Administration (SSA) by Jan. 31 of the following calendar year.
You’ll need six copies of each employee’s W-2 form. These six copies are used for the following purposes:
Have six copies of your employees’ W-2 forms ready to go by your filing deadline.
Your W-3 form summarizes all your employees’ individual W-2 forms. It indicates the total wages you paid and taxes you withheld across all your employees. This form makes double-checking your numbers easy: When you add all employee gross wages, the sum should match the one on your W-3. File one W-3 form to the SSA alongside all your W-2 forms and store a copy for your records.
The W-9 form is the contractor’s equivalent of the W-4 form. However, since you don’t deduct taxes from contractor payments, the form won’t ask your contractors to indicate their withholding. All that’s needed is basic information, a Social Security number, and an indication of their business entity type, if they have one. Contractors should file their W-9 form after accepting their first assignment from you. [Read related article: What Are W-9 and 1099 Tax Forms?]
Just as Form W-9 is the contractor equivalent of Form W-4, Form 1099-NEC is the contractor equivalent of Form W-2. Each contractor whom you pay at least $600 during a calendar year must receive a 1099-NEC form from you. In each 1099-NEC form, you’ll state how much you paid the contractor. Just as with W-2 forms, your deadline to send six copies to the relevant parties is Jan. 31 of the following year.
Note that Form 1099-NEC is a relatively new form. It was introduced as a replacement for Form 1099-MISC in tax year 2020. Before 1982, it was used for a different purpose and then shelved (until now).
If your company must file and pay federal unemployment (FUTA) taxes, you must file IRS Form 940. You’ll know your company must pay FUTA taxes if you paid total gross wages of at least $1,500. You must also pay FUTA taxes if you had at least one employee during at least 20 weeks of the year. If your total FUTA taxes will exceed $500, you must pay this tax in quarterly installments.
Your 940 form will indicate the total FUTA taxes you paid during the tax year in question. You must file it by Jan. 31 of the following year.
Form 941 is necessary for most small businesses that withhold federal income taxes and FICA taxes from their employees’ paychecks. You’ll file this form quarterly to indicate how much you withheld in payroll taxes across all your employees per quarter. Accurate calculations are key, because when you file your Form W-3, the IRS will cross-check its values with those on your 941 forms.
On your 941 form, you’ll indicate each of the following values for the quarter in question:
Your due date for each quarter’s 941 form is the final day of the month after the quarter ends. For example, since Q1 runs Jan. 1 through March 31, you have until April 30 to file your Q1 941 form.
Occasionally, a small business can file IRS Form 944 annually instead of filing quarterly 941 forms. This rule applies solely to small businesses with a total FICA and federal income tax liability of $1,000 at most. In other words, it’s exceedingly rare to need Form 944 instead of Form 941.
If you are among the rare businesses that can ditch 941 forms for 944 forms, the IRS will tell you so. You’ll then file the form by Jan. 31 of the following calendar year. You’ll include the same information as on Form 941, but in an easier, shorter format suited for your small tax liability.
Form 1095-B tells the IRS about the self-insured health plan you offer your employees. Chances are that if you run a smaller business, you don’t offer this type of plan. Self-insured plans are health insurance plans that your company operates rather than buying insurance from a third-party insurer. For example, many universities operate their own insurance plans for their employees and students. These plans are self-insured.
If your business’s health insurance offerings are indeed self-insured, you’ll need to send each employee Form 1095-B. This form will show the months during which you covered the employee. Retain a copy for your records and send employees two copies – one each for their records and tax returns – by Jan. 31. You must also send your 1095-B form to the IRS by Feb. 28. If you e-file with the IRS instead, you have until March 31.
Just as Form W-3 summarizes all your W-2 forms, Form 1094-B summarizes all your 1095-B forms. It states your contact information and the total number of 1095-B forms you filed. File your 1094-B form alongside all your 1095-B forms.
If your company has at least 50 full-time equivalent employees and offers them third-party rather than self-insured healthcare plans, you must file Form 1095-C. As with Form 1095-B, you’ll generate a 1095-C form for each employee. The form will indicate the months during which the employee was covered and list the employee’s required contribution for each month. Even employees who did not receive coverage under your plan must receive this form.
Your employees must receive their 1095-C forms by Jan. 31. The IRS must receive all your forms via postal mail by Feb. 28 or electronically by March 31.
Form 1094-C is to Form 1095-C as Form 1094-B is to Form 1095-B. It’s just a summary form. Use it to record the number of 1095-C forms you’re filing and record your applicable large employer (ALE) member information. If applicable, you’ll also list the other members in your aggregated ALE group. You must file Form 1094-C when you file your 1095-C forms.
If all these forms sound like a lot to keep track of, don’t fret. There’s an easy way to take care of them all.
All small business owners should know about the 12 payroll forms above to remain compliant in paying business taxes. Knowing them in and out, though, doesn’t have to mean making annoying calculations and filling out tedious forms. You can automate all that with payroll software, which turns your wage and tax records into payroll forms with just a few clicks.
You can find a payroll software provider perfect for your needs even if your payroll is incredibly complex. In fact, we recommend ADP for exactly that purpose; read our review of ADP payroll software to find out why. If your biggest concern is getting your taxes right, read our Square Payroll review. Visit our reviews of the best payroll software providers for more recommendations. Get ready to execute your payroll – and taxes – with none of the former hassle.