FAQs: Payroll Basics
Payroll consists of three tasks.
1. Calculate payroll taxes – Computes taxes based on Federal and State requirements.
2. Tax deposits – IRS/State requires most small businesses to deposit payroll taxes monthly. Some may need to deposit in three business days (semi-weekly). The IRS/State sends a letter out every year about your deposit schedule. If you are unsure, you need to verify it with the IRS/State.
3. Payroll reports – IRS requires form 941 (quarterly) and form 940 and form W-2 reports (annual). Most states require similar reports on the same schedule (quarterly and annual). PaycheckManager can prepare State quarterly and annual reports where applicable. For more information, visit your state website for more details.
Payroll taxes paid to IRS and State contain different items. Some items are paid by the employer, some by the employees and others are paid by both.
1. Federal/IRS – Estimate federal income tax, social security tax, medicare tax, and unemployment insurance.
2. State – Generally, state taxes include income tax, state unemployment insurance, and disability insurance. Some states or local government may impose other taxes as well. Our computations include all state payroll taxes. You can add tax items for local requirements.
3. State UI (Unemployment Insurance) – Each state typically has a fixed UI rate for new companies. However, the UI rate is often changed annually for a company based on the level of usage of the insurance by the company (unemployment claim by employees). Please make sure you verify the UI rate for your company.
Deductions are made on paychecks for various reasons. There are three types of deductions.
1. Non-Tax – The deduction is subtracted from the gross wage before any taxes is computed. For example, a qualified POP (premium only plan) insurance allows the employees to pay for medical insurance without paying any taxes on the premium paid.
2. Before Tax – For example, a 401K retirement saving plan allows the employees to deduct the amount of contribution to the 401K plan before federal income tax is computed. However, the amount is still taxed for social security and medicare taxes.
3. After Tax – After all taxes have been computed, adjustments can be made to the net amount of the check. The deduction could be a wage garnishment required by the government (for child support, back-taxes, e.g.), a reimbursement (negative deduction) by the company for expenses paid by the employee, a Roth IRA contribution or any other items.
eSmart Paycheck is designed with complete flexibility for you to define tax deposit schedule, UI rate, income items (overtime, e.g.), deduction items (401K, e.g.), local taxes or other items for your company. Always start by setting the company policy or plan, then define the specific situation or participation by the employees, then the paychecks will be computed accordingly. For your convenience, we have pre-defined many most often used income and deduction items. You do not need to use these items and you can edit or add new income or deduction items anytime.
FAQs: Glossary of Payroll Terms
New employees must complete and submit the form to employer. The marital status and # allowance will determine the appropriate amount of income tax to withhold from the employee's wages.
Number of allowance on W-4 (back to top)
The more allowances claimed on W-4, the less income tax will be withheld from the paycheck. An individual typically claims one allowance for himself/herself, one for his/her spouse, and one for each of his/her dependents.
After-the-Fact Paycheck (back to top)
It is like blank checks that enable users to enter any income, deduction and tax amounts to reconcile prior payroll records or make adjustments in eSmartPaycheck.
The day of the payroll. It is used in eSmartPaycheck to manage a batch of paychecks.
Check date is very important because it determines the due date of all payroll taxes. It can be different from payday and is not tied to pay period either.
Generally used to describe the time period the paycheck covers. Pay period has no significance in payroll tax calculation or reporting.
Like marital status and # of allowance, Pay cycle is very important in payroll tax calculation to determine the appropriate amount of tax to withhold. Pay cycle typically is Weekly, Biweekly, Monthly, Semi-Monthly, Quarterly, Semi-Annually or Annually.
Tax Deposit Schedule/Cycle (back to top)
Employers, after withholding taxes from paychecks, are required to deposit the payroll taxes to the government. Depending on the size of the payroll taxes, the IRS requires the employee to deposit monthly, semi-weekly, next banking day or quarterly.
Regardless of the company's pay cycle and the tax amount, a new company is requires to deposit the taxes monthly. After six quarters, the IRS will notify the company of its deposit schedule.
The deposit schedule is very important because if an employer deposits even just one day late, penalty and interest will be applied automatically by the IRS and the State. If you do not know your company's deposit schedule, you need to contact the IRS or the State to find out.
Earning include salary, bonus, commission and/or other items of income for the employees. Users can define customized earning items for the company with great flexibility in eSmartPaycheck.
Expenses of varying purposes that are deducted from Earnings for calculations of payroll taxes. Typically, deductions reduce taxable earnings, resulting in lower taxes.
A deduction to earning that reduces taxable amount, thus reduces the income tax withhold; however, the deduction does not apply to social security and medicare taxes. For example, the amount contributed to a qualified 401K retirement plan is deducted from the total earning before (pre) income tax calculation. However, the social security and medicare taxes are still computed on the full amount of earnings. eSmartPaycheck allows users to set up customized pre-tax deductions and company matching.
Different from pre-tax deduction, a non-tax deduction reduces the total earning for all payroll tax calculations. For example, the medical insurance premium paid by the employee under a qualified POP (Premium Only Plan) is deducted from earnings so no payroll tax applies.
After payroll taxes are computed, there may be deductions for alimony, child support and other purposes that the company needs to include on particular paychecks.
Payroll tax Withholding (back to top)
Generally, employee is required to pay income tax, social security, medicare, state and other applicable taxes. It is the responsibility of the employer to withhold the proper amounts of these taxes from each paycheck. This is payroll tax withholding.
Taxes levied on both employers and employees are used to fund the Social Security program.
Medicare tax is used to provide medical benefits to individuals when they reach age 65.
Known as FUTA (Federal Unemployment Tax Act). The tax is paid by employers to fund the unemployment account at the federal government, which pays employees who leave a company involuntarily.
Different States have different UI programs that require the employers and/or the employees to pay into the program for unemployment benefits. Where applicable, if you do not know your company's UI tax rate, you need to contact your State to find the specific rate for your company.
In addition to the Federal income tax, social security, medicare tax and unemployment insurance, States and local government have different payroll tax requirements and rates. eSmartPaycheck computes all State level taxes automatically, though you may need to add local tax items to your payroll.
Abbreviated for Current Period. It represents earnings, deduction or taxes for a particular paycheck which covers the specific earning period.
Abbreviated for Year-to-Date, referring to the total earnings, taxes, etc. from the beginning of the tax year to the current pay period, include the current paycheck.
Abbreviated for Year-to-Previous Period, referring to total earnings, taxes, etc. from the beginning of a tax year to the previous pay period, exclude current paycheck.
Instead of creating one check at a time, you can enter the earning information (hours, etc.) for all employees on a table.
Wage that is subject to tax calculations.
FAQs: What eSmartPaycheck can do?
Does eSmartPaycheck compute all payroll taxes for both employees and the employer? (back to top)
eSmartPaycheck generally covers most of payroll taxes: federal and state income tax, social security, and medicare. For local taxes not included in the set up, you can add items of deductions.
Can I use eSmartPaycheck to prepare payroll return forms like 941, 940 & W2, etc.? (back to top)
Can I e-file payroll tax returns to the IRS & State? (back to top)
At this time, we only support e-file for 940, 941, and W2 and few state efile. We will continue to add more services as they become available.
Can I make payroll tax deposits through eSmartPaycheck? (back to top)
The option is not available at this time. You may want to use EFTPS.gov and State website to make tax deposits.
Does eSmartPaycheck support paycheck direct deposit? (back to top)
The option is not available at this time. However, you can always print paychecks and distribute to your employee.
Can I use eSmartPaycheck for employees in different States? (back to top)
Currently, eSmartPaycheck does not support employees in multiple States.
Can I use eSmartPaycheck to pay contractors and prepare 1099-misc forms? (back to top)
Contractors are typically not part of payroll because generally no payroll taxes are withheld. If you need to file form 1099-misc, please visit our website, www.esmartpayroll.com to prepare, print and efile.
Does eSmartPaycheck handle sales tax or use tax? (back to top)
Can eSmartPaycheck be used to manage worker’s compensation insurance? (back to top)
What is the cost for using eSmartPaycheck? (back to top)
Our pricing is based on number of employees with saved check. For more information, please visit the Pricing Section.
How do I pay for the service? (back to top)
Invoice is generated on the 20th of each month and user can make payment online with credit card.
FAQs: How to use eSmartPaycheck?
Create, Print or Edit Paychecks, etc.
FAQs: How do I create Paychecks and Paydays?
Video demo - How to process Payroll? (back to top)
Coming Soon ....
Video demo - How to use Payroll Calculator? (back to top)
Coming Soon ....
I do not know the UI (Unemployment Insurance) rate for the Company? (back to top)
If you do not know the UI rate, you must contact the state.
I do not know the tax deposit schedule for the company? (back to top)
If you do not know the deposit schedule, you must contact the IRS for federal or the State revenue department.
How to add or change earning items: ex. Overtime, commission, bonus, etc.? (back to top)
1) Go to "Edit Current Company"
2) Jump to "Earning" section, and you would see 'existing' item listed.
3) Then simply put a check mark on it and save
4) Go create a paycheck, under Earning and Compensation section, you should see a row under Salary, simply select an item and enter rate/or amount then click Add.
How to enter deductions for retirement plan, health plan, alimony, child support or other items? (back to top)
1) Go to "Edit Current Company"
2) Jump to "Deduction" section,
3) Put a check mark on the item and click save
-If you need to add another deduction item, you can click Add New Deduction
4) "Go to View/Edit Employee",
5) Choose the employee and click Edit
6) Jump to Voluntary Deduction,
7) Choose the deduction and click "Enroll" then fill in the information
8) Once you are done, Save
How do I add a local tax? (back to top)
You can set up an "after tax deduction" item to compute and record local taxes.
How do I reconcile Payroll records from a different Payroll Services?
How do I transfer my payroll data from another service provider? (back to top)
If you have issued paychecks in the current calendar year already, you can use "after-the-fact" paychecks to enter the information into eSmartPaycheck. The best practice is to enter all prior information before you start to create new paychecks.
Why do I need to reconcile prior payroll records? (back to top)
Without the complete payroll information, the payroll tax calculation could be wrong, resulting in unnecessary extra taxes. Payroll taxes are cumulative with each calendar year. Typically, you only need to reconcile current calendar year records.
What is an after-the-fact paycheck? (back to top)
After-the-fact is essentially a blank check which an user can enter any earning, deduction and tax amounts. Once saved, it becomes part of payroll history. It is very flexible for reconciliation of payroll records. After-the-fact checks should be used before new paychecks are issued.
How to prepare after-the-fact checks? (back to top)
To prepare after-the-fact checks:
1) Find out the the amounts you want to reconcile (ex. earnings, medicare, social security tax, etc)
2) Go to "Create after the fact check",
3) Choose an employee and click Create
4) Fill in appropriate information and click Create.
Should I edit a check or use After-the-fact check to make adjustment? (back to top)
Edit a previously issued check or create a back-dated, after-the-fact check will create some inconsistency. It is better to use after-the-fact check with a current date to make adjustments to avoid time-loop. If you edit a prior check or issue back-dated check, eSmartPaycheck will include its amounts in the next paycheck. Future checks will then be accurate.
How do I print Paychecks & Pay-stubs?
How to print paychecks with bank information? (back to top)
1) Go to "Edit Current Company",
2) Jump to Bank Info and enter the amount.
Note: If you enter the bank info after create paychecks, you would need to delete checks and re-create to see changes.
Can I print the checks on our own, pre-printed company checks? (back to top)
Yes, if your check maps well with the system check. You should remove all bank information so only the amount, date, employee name, etc. are printed.
Where can I buy blank check stocks/check paper? (back to top)
Blank check stocks are available online or your local office store: ex. Staple.
Can I write my own checks? (back to top)
Can I edit the lay-out of the paycheck? (back to top)
No, currently, the system check format is fixed.
Can I print checks with an InkJet print? (back to top)
No, you need a laser printer. If the bank could not read the account number well, you may even need special MICR toner for better magnetic properties.
How to print pay-stubs? (back to top)
Paystub is part of the paycheck PDF copies. The top section is the paycheck and the two lower sections are pay-stub.
How to make changes to previously issued Paychecks?
What are the dangers of editing previously issued checks? (back to top)
When you edit a previously issued check,
1) we do not automatically re-compute and change the subsequently saved checks. Therefore, the “year-to-date” amount shown on those subsequent checks may not be correct.
2) Once a check has been edited, we can't reverse it.
How to edit a check? Delete a check? (back to top)
To edit/or delete a check:
1) Go to Edit/Cancel Payday
2) Read the agreement and proceed.
3) Choose the payday of the check and click Revise.
4) Choose the paycheck and click Void.
NOTE: You can't restore/or recover the paycheck once it has been edited/or deleted.
How to delete a payday? (back to top)
To delete a payday, is similar to delete paycheck:
1) Go to Edit/Cancel Payday.
2) Read the agreement and proceed.
3) Choose the payday and click Cancel.
NOTE: You can't restore/or recover the payday once it has been deleted.
Can I recover a deleted check? (back to top)
No, once a check has been deleted, it can't be recovered.
How to export the payroll data? (back to top)
To export payroll data:
1) Go to Payday Summary,
2) Enter the period it covers and click Run Report.
3) Then click on export icon, which a csv file would open (you can either open or save).
FAQs: Payroll Tax Deposits
Does eSmartPaycheck compute payroll taxes for me?
What payroll taxes do I need to pay to the government? (back to top)
The typical federal taxes that a company needs to pay are listed as follows: Income tax withholding, social security, Medicare and federal unemployment tax. Your state taxes may vary, however they typically include state income tax and state unemployment tax . For more information, please contact your state or visit your state’s department of revenue website.
How does eSmartPaycheck.com compute the taxes? (back to top)
eSmartPaycheck.com computes taxes use the formula's provided by the government
When do I need to make tax deposits to avoid penalty and interest?
When do I need to make tax deposits? (back to top)
You are required to make tax deposits based on your tax deposit schedule. This schedule is set by the government and can be found in Publication 15 for the IRS.
How often do I need to make tax deposits? (back to top)
The frequency at which you need to make deposits is based on your tax deposit schedule. The schedule is determined by your prior tax liability.
Do all employers have the same tax deposit schedule? (back to top)
No, not all employers have the same tax deposit schedule. Your tax deposit schedule is based off your prior quarters' liability.
Does the tax deposit schedule ever change? (back to top)
Yes, your tax deposit schedule can change. It typically is updated once a calendar year although there are exceptions that may cause your deposit schedule to change partway through the calendar year.
Is my company's tax deposit schedule the same for both Federal and State taxes? (back to top)
Typically yes, your State tax deposit schedule is the same as your Federal tax deposit schedule. Not all states follow the Federal tax deposit schedule though, so check with your individual state for more information.
Is "paycycle" the same as "tax deposit schedule?" (back to top)
No, your paycycle is determined by your individual company, while your tax deposit schedule is determined by the government. The two can share similar names, but the periods in question can be different.
What does "quarterly depositor" mean? (back to top)
If you are a quarterly tax depositor, you are required to deposit your taxes on a quarterly basis. Your tax deposit will be considered timely up to 1 month after the quarter ends, eg. April 30th for Q1.
What does "monthly depositor" mean? (back to top)
If you are a monthly tax depositor, you are required to deposit your taxes on a monthly basis. Your tax deposit will be considered timely up to the 15th of the month after the previous month ends, eg. January paydays can be paid on February 15th.
What does "semi-weekly depositor" mean? (back to top)
If you are a semi-weekly tax depositor, you are required to deposit your taxes on a semi-weekly basis. Your tax deposit is due via the following rules. If your payday is on Sat, Sun, Mon, Tues, your taxes are due the Friday of that week. If your payday is on Wed, Thurs, Fri, your taxes are due Wednesday of the next week.
What does "next banking day depositor" mean? (back to top)
If you are a monthly tax depositor, you are required to deposit your taxes on a next banking day basis. Your tax deposit is due the next banking day after your payday.
How do I make tax deposits?
Can I deposit my taxes when I file my payroll returns? (back to top)
If your tax deposit schedule is "quarterly", you can deposit your taxes when filing your payroll returns. If your deposit schedule is semi-weekly, monthly or next banking day, you need to make deposits long before the payroll tax return is due.
What is a payment voucher? (back to top)
A voucher is provided by the government that shows the type of taxes and amounts for deposits. The IRS and States have gradually moved to electronic payments and do not require vouchers for tax payments.
Form 8109 was the Federal tax deposit coupon that could be used to deposit your taxes. The IRS has since moved to an online electronic system and no longer accepts Form 8109
How can I make my payroll tax deposits to the IRS? (back to top)
The primary method of making payroll deposits to the IRS is using the EFTPS system. This software/website allows you to make tax deposits electronically.
EFTPS is the system the IRS uses to electronically process tax payments. This system can be used for individual, payroll, and corporate tax deposits. Note that you will need separate authorizations to file the different tax types.
How do I sign up to make electronic payroll tax deposits to the IRS? (back to top)
To sign up for the EFTPS system, simply go to www.eftps.gov and follow the registration instructions there. Remember to sign up for payroll tax deposits, not individual or corporate; unless you plan on adding those in the future.
How can I sign up to make electronic tax payments to the state? (back to top)
Check with your individual state website for more information on how to pay electronically. Most, if not all states have electronic payment options online at the State websites.
Where should I mail my tax deposit voucher if I want to pay by check? (back to top)
You can check the individual state websites for more detailed information on where to mail your tax deposit. The IRS no longer accepts Form 8109 for tax deposits.
Can I pay my taxes using a credit card? (back to top)
Some states offer the ability to make tax payments via credit card, but others do not. Check with your individual state for more information. The IRS does allow you to deposit taxes via credit card, but there is an additional charge.
What if I am late or under paid in making tax deposits?
What happens if I submit a tax deposit late? (back to top)
If you are late by even one day, the IRS and the States applies penalty and interests without exception.
How much is the penalty and interests if I am late? (back to top)
The penalty and interests are computed based on the number of days you are late. It can accumulate very quickly. The IRS publication 15 has more details on how the penalty and interests are calculated.
What should I do if I have underpaid my taxes? (back to top)
If you have underpaid your taxes, you will want to make up any deposits as soon as possible.
What should I do if I have overpaid my taxes? How can I get my money back? (back to top)
When you file the payroll returns (form 941, e.g.), the form will show an overpayment. You have the option to have the overpayment applied to the next reporting period or have a refund check. Once the return has been filed for the period, the government will process the refund as requested.
FAQs: Payroll Tax Return Filing (back to top)
Why are payroll returns necessary?
Federal payroll returns? (back to top)
As part of the payroll requirements, employers need to file form 941 (wage report) every quarter and form 940 (UI) every year to the IRS. Employers are also required to file W-2 (Employee wage, etc.) to the SSA every year. The SSA will share the W-2 information with the IRS.
State payroll returns? (back to top)
State requirements are different for different States. Most States follow the same reporting schedule as that of the IRS, though some States require more frequent reportings with additional information.
Can I prepare and file 1099-misc with eSmartPaycheck? (back to top)
1099-misc form is for contractors, not employees. You can prepare, print and efile 1099-misc at www.eSmartPayroll.com.
When are the forms due?
Does eSmartPaycheck generate payroll returns for filing? (back to top)
eSmartPaycheck generates federal form 941, 940 and W-2 as required. eSmartPayroll also generate most State payroll returns for payroll reporting.
Why does IRS and State need the payroll returns? (back to top)
The payroll returns are necessary for the IRS and the States to reconcile the tax deposits with the company tax liability. The reconciliation determines if there is any penalty and interest.
How does IRS and State use the payroll returns? (back to top)
The information on the payroll returns (wages, taxes, paycheck dates, etc.) are reconciled with actual tax deposits and deposits dates to determine if the employer is in compliance with the deposit and filing requirements.
How to create the payroll return forms?
What are the due dates for the Federal payroll returns? (back to top)
Form 941 quarterly return is dues in the month following the quarter ends. Filing deadlines are 4/30, 7/31, 10/31 and 1/31. Form 940 is required before 1/31. Employers are required to mail W-2 copies to employees before 1/31 and the deadline for filing W-2 to the SSA is 2/28. The filing deadline is extended to 3/31 if the W-2 is filed electronically to the SSA.
What are the due dates for the State payroll returns? (back to top)
State requirements are different for different States. Most States follow the same reporting schedule as that of the IRS, though some States require more frequent reportings.
Does eSmartPaycheck send me an email reminder to file the returns? (back to top)
eSmartPaycheck generates payroll returns in your account for you to print or efile where available. However, we do not send email reminder at this time.
What happens if I filed the payroll returns late? (back to top)
If you have made all tax deposits on time already, you have a 10-day automatic extension for form 941. If your filing was lost (mail), the IRS will send you a letter inquiring about the form. Generally, a lost or late form does not result in penalty and interest if all payments have been made timely.
How does eSmartPaycheck create the payroll returns? (back to top)
eSmartPaycheck generates payroll returns based on their respective due dates. For example, you can check the availability of form 941 few days after the quarter ends. If the form is not available or if you have edited any check, you can re-generate the form in eSmartPaycheck.
How to file the payroll returns?
Can I recreate the payroll returns if I made changes to previously issued checks? (back to top)
eSmartPaycheck generate payroll returns after each quarter ends. Users may generate/recreate payroll returns if necessary.
Can I mail the forms created by eSmartPaycheck to the IRS and the State? (back to top)
Yes, you can print, sign and mail the payroll forms to the IRS and the State as needed. However, we recommend efile whenever possible because it is easier and you will have a filing confirmation.
Can I file the payroll returns electronically to the IRS and the State? (back to top)
Yes, you can file the form 941, 940, W-2 and to the IRS electronically. Once completed, we will post the efile confirmation to your account. We can file W-2 forms to all States. We can efile California DE9, DE9C forms and forms for few other States, though most State eFiles, except W-2, are not available yet.
Why do I need a signature PIN to efile form 941/940? (back to top)
Different IRS efile systems have different requirements. The current 941/940 efile system requires a signature PIN.
Do I need a PIN to file W-2 or W-2c correction form? (back to top)
No, you can efile W-2 or W-2c anytime.
How do I apply for a PIN? (back to top)
You can apply a business taxpayer PIN from our website www.eSmartPayroll.com. We will send the application to the IRS electronically. The IRS will verify the company information then mail a letter with a 10-digit PIN to the contact person in a few weeks.
Can I e-File form 941/940/944 if I do not have a PIN now? (back to top)
You can enter a random 10-digit number and we will submit your e-File to the IRS, though the e-File will be rejected. You will still need to print, sign and mail a copy of the form to the IRS. Alternatively, if you have paid all taxes, you can revise and resubmit a rejected form 941 after you receive the PIN. We can back-file form 941 up to 4 quarters.
Do I need multiple PINs for multiple Businesses? (back to top)
Yes, each business (EIN) needs a 10-digit PIN of its own. You can prepare and submit multiple PIN applications from our website. Tax professionals managing multiple business clients can apply for Reporting Agent PIN. However, the application is made directly through the IRS and all clients must sign form 8655 authorizing the tax professional to e-File for them
What is a Business Taxpayer PIN ? (back to top)
Business Taxpayer PIN is used for one company (EIN) only. It is intended for individual businesses to e-file their own payroll tax returns.
What is a reporting agent PIN? (back to top)
Reporting Agent PINs are for tax professionals managing a large number of clients. A Reporting Agent PIN is tied to all of its client EINs and it is the responsibility of the Reporting agent to maintain the list of clients at the IRS.
How to apply for a Reporting Agent PIN? (back to top)
The PIN is applied from the IRS directly. Please visit the IRS website and e-Services for more details on the requirements.