As this year wraps up, The Square Payroll Team recommends that you read through this article for end-of-year (EOY) payroll information.
Review Employee Information
Confirm your employees’ name, Social Security number, and address. This information will be printed on their Form W-2. We will attempt to mail each employee their W-2 to the address provided. If the delivery attempt is unsuccessful, you are responsible for providing Form W-2 to your employee.
Add All Former Employees to Square Payroll
Double-check that all employees paid this year, including those who no longer work for you, have been added to Square Payroll. You are responsible for providing Form W-2 to all employees that worked for you in the previous year.
Send Your Final Payroll
Payroll taxes are due based on the pay date – not the days employees worked. Any paychecks with a pay date in January 2018, regardless of the actual pay period, will be included in 2018 for tax purposes (and annual W-2s). If you’d like wages to be included in 2017 W-2s, make sure the pay date is in 2017 before sending.
You’ll be able to send Off-Cycle Payments for 2017 until January 8, 2018 (1/8/2018).
Federal Unemployment Tax FAQs
Federal Unemployment Tax (FUTA) is an employer-paid tax that provides unemployment compensation to those that have lost their jobs. FUTA tax is applied to the first $7,000 in wages and is calculated at a rate of 0.6%, unless you live in a credit reduction state such as California (see more about California FUTA Tax Collection below).
Federal Unemployment Tax is due when your tax liability reaches $500 in a quarter. Square Payroll deposits your FUTA tax every quarter, even if you do not reach $500 in tax liability. You can read more about FUTA tax here.
How to make a FUTA Tax payment
You can make a FUTA tax payment to the IRS via electronic funds transfer (EFT) using the Electronic Federal Tax Payment System (EFTPS). To enroll or to learn more, go to EFTPS.gov. Alternatively, you can arrange to make a same-day wire payment from your financial institution.
How do I find out how much I owe in FUTA taxes prior to joining Square Payroll?
We recommend you contact the IRS at 800-829-4933 or call your previous payroll provider to confirm how much FUTA tax you have already deposited this year.
California FUTA Tax Collection
California employers owe an additional 2.1% in FUTA tax for the tax year 2017. We will be debiting this additional tax amount from you at the beginning of 2017. This is due to California failing to re-pay the federal loan used to pay Unemployment Insurance benefits. You can read more about it on the CA EDD website as well as on the IRS website.
California FUTA FAQs
Why did the FUTA tax rate get adjusted for California employers?
California is a “credit reduction state” which means that it took loans from the federal government to pay state unemployment benefits. However, the state was unable to repay those loans within the required time frame. For this reason, the credit that employers would normally receive against the full FUTA tax rate of 6% has been reduced by 2.1%. This results in additional cost of up to $147.00 per employee.
How does the credit reduction impact my 2017 tax payments and filings?
Square Payroll will calculate this amount for you. You will get an email to confirm the additional amount, along with a link to approve the payment. Your annual Form 940 will reflect the credit reduction and the FUTA tax paid for tax year 2017. Form 940 and the associated tax payment will be remitted to the IRS by January 31, 2018.
Why are we being told about this after the year has passed?
States are required to repay their outstanding federal loans by November 10, 2017. Shortly after that date, the U.S. Department of Labor releases a list of states and their associated credit reductions. Because of the timing of this release, and the fact that the tax applies to the entire year, we calculate and debit this tax in January.
What was the FUTA tax rate for 2017 before and after the credit reduction adjustment?
The 2017 FUTA tax rate was 6.0% and is calculated on the first $7,000 of wages paid to each employee. Employers typically receive a 5.4% credit for paying state unemployment taxes which brings the net FUTA tax rate down to 0.6% (which is what Square Payroll has been calculating and paying throughout the year). Because this 5.4% credit was reduced by 2.1% for California employers, the net FUTA tax rate is now 2.7%. In a formula, it looks like this: 6.0% − (5.4% − 2.1%) = 2.7%.
S-Corp Health Insurance Reporting
Health and accident insurance premiums paid on behalf of a greater than 2-percent S corporation shareholder-employee are reported as wages on the shareholder-employee’s Form W-2 and subject to income tax withholding.