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US payroll tax compliance for small businesses: how Thoshika handles it

· 4 min read
The Thoshika team
The Thoshika team
ZPOA

Running payroll in the United States means withholding the right taxes, paying the employer's share, depositing on time and filing the quarterly and annual returns, for the federal government and for every state where you have employees. This post sets out what each obligation is and how Thoshika People and Books handle it.

The obligations, in brief​

For most employers, each pay run involves:

  • Federal income tax withholding, worked out from each employee's Form W-4 and the IRS withholding tables.
  • Social Security and Medicare (FICA). Employer and employee each pay 6.2% Social Security tax up to the annual wage base, and 1.45% Medicare tax on all wages. Employers also withhold the 0.9% Additional Medicare Tax once an employee's wages pass $200,000 in the year. The rates and rules are set out in IRS Publication 15 (Circular E), and the Social Security Administration publishes the wage base each year.
  • Federal unemployment tax (FUTA), paid by the employer only, on the first $7,000 of each employee's wages, with a credit for state unemployment tax paid on time (IRS: FUTA tax).
  • State unemployment insurance (SUTA or SUI), at a rate each state assigns to the employer, up to that state's taxable wage base.
  • State and local income tax withholding, where the work state (and sometimes the city, county or school district) has an income tax.

Then come deposits and returns: federal taxes deposited on a monthly or semiweekly schedule through EFTPS, Form 941 every quarter, Form 940 each year, Forms W-2 and W-3 to employees and the Social Security Administration by January 31, state withholding returns and SUI wage reports, and new-hire reports to each state.

Rules as dated data​

Rates, wage bases and brackets change, usually from January 1 and sometimes mid-year when a state changes its SUI rates. In Thoshika, every rate, wage base and table is a row with an effective date. When a rate changes, a payroll administrator adds a new version from the date it applies, and the previous version closes the day before.

Pay runs that were already finalized keep the rates they were calculated with, so earlier quarters still reconcile with what was deposited and filed.

Payroll in People​

The United States country pack in People covers:

  • Withholding: federal income tax from Form W-4 data, and state and local income tax by work location, including multi-state employees.
  • FICA: Social Security up to the wage base and Medicare on all wages, with the Additional Medicare Tax applied automatically once year-to-date wages pass the threshold.
  • Employer taxes: FUTA and SUTA, with each state's rate and wage base kept per company and per year.
  • Pre-tax deductions: 401(k), Section 125 benefits and HSA contributions, reducing the right taxable wages for each tax.
  • Overtime: FLSA exempt and non-exempt classification, with overtime worked out from approved timesheets.
  • Outputs: Form 941 and Form 940 figures, W-2 and W-3, state withholding and SUI wage reports, new-hire reports, and a NACHA file for direct deposit.

One caution we give every customer: check the figures with your CPA or payroll tax adviser before filing, especially in the first quarter after you switch providers.

Why it matters​

Because payroll and accounts run on the same platform, the payroll journal posts to Books by department and location, and the withholding, FICA, FUTA and SUTA liabilities land in the right ledger accounts. When you deposit, the payment clears the liability. There is no export, import or re-keying between payroll and the general ledger.

If you are moving from another provider mid-year, bring the year-to-date figures with you so W-2s cover the whole year. The migration guide explains how.

Read more in the People and Books guides, or see how Thoshika compares with Rippling and Gusto.