So You Have Started a Business and Hired Employees….Now What?

There are payroll taxes and payroll tax returns that need to be filed and paid regularly. The most significant of these taxes tends to be the 941 payroll tax deposit and the 941 payroll tax return. This tax is the one that is the downfall of many companies, but it doesn’t have to be. The tax is 7.65% of your gross payroll, but it is easy to think that it’s larger than that. 

For example: 

If you hire someone at a pay rate of $10 per hour and that person works 40 hours, then you owe them $400. (40 x $10) However, you don’t pay them $400 because of withholding.  

You may withhold: 

$65.00 for federal income tax 

 $ 5.80 for Medicare (1.45%) 

$24.80 for Social Security (6.2%) 

$95.60 Total withholding 

This means you will pay the employee after one 40 hour week $304.40. ($400 – 95.60 = $304.40) 

So, let’s say you do this 4 times because most 941 deposit payments are required to be paid monthly, and now you need to file your form 941 return and pay your 941 tax deposit. 

You, therefore, need to make the following 941 payroll tax deposit. 

  $95.60 1st weeks’ employee withholding 

  $95.60 2nd weeks’ employee withholding 

  $95.60 3rd weeks’ employee withholding 

  $95.60 4th weeks’ employee withholding 

$122.40 Employer matching of the Social Security and Medicare, or 7.65% of gross pay. 

$504.80 Total 941 Deposit needed 

$504.80 doesn’t seem so bad, but what if you have more employees. Let’s look an example with 5 employees paid instead of one. 

$504.80 X 5 employees = $2,524 

This amount, $2,524, can seem like a large tax, but in reality, $612 is the tax and $1,912 is your employees’ pay that you withheld from them for their federal income tax, Social Security, and Medicare. The true tax that the employer pays is 7.65% of total gross pay to match the amount the employee paid for Social Security (6.2%), and Medicare (1.45%). (6.2% + 1.45% = 7.65%) 

Therefore, in order to budget to pay the 941 we recommend budgeting for the total gross payroll plus 7.65% of the total gross pay. 

For example: 

If you have 5 employees whose pay rate  is $10 per hour and they work 40 hours per week, then budget: 

$400 x 4 weeks = $1,600.00 (1 employees pay) 

$1,600.00 

5 employees 

$8,000.00 Gross pay 

Budget: 

$8,000.00 Gross pay 

+ $612.00  7.65% of $8,000 (7.65% X $8,000.00) 

$8,612.00 Total amount needed to pay payroll and 941 deposit 

This is how we recommend budgeting to pay your form 941 deposits and payroll. It is an easier way to conceptualize 941 deposits. Thinking that the entire 941 deposit is the tax can lead to frustration and unpaid 941 payroll taxes. 

Do you have unpaid payroll taxes? Call IRS Tax Fighters today at 888-959-2671.  

We resolve and prevent tax problems with the ultimate goal of helping you reduce your annual tax debt and increase your wealth. 



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