Federal Tax Forms For Employee Payroll

Trust me, I don’t enjoy being the bearer of such obnoxious and boring information, but being on top of your employee payroll and taxes is very important.

First of all, it will keep you out of trouble. The IRS is quick to tack on extra penalties for late filing and interest charges. Second, if you have this aspect of your business under control, you will be able to focus on your core business, rather than being bogged down by the stress of not knowing how to handle these things.

Yesterday, I covered the forms necessary for hiring a new employee, and previously, I went over the withholding that is taken out of each paycheck. Today, I will summarize the forms necessary for reporting and paying the employee taxes that are owed to the federal government.

To complete all of these forms by hand and to submit them by mail is probably not the best use of your time and resources. QuickBooks offers a very easy-to-use payroll add-on for about $250 per year. This will also make electronic filing a lot simpler.

Form 941 – Due Jan 31, Apr 30, Jul 31, Oct 31 (for IRS)
Quarterly form that reports all wages and withholding paid that quarter. If your employees are seasonal and you do not have taxable wages every quarter, be sure to check the “seasonal employer” box on line 19. You only need to file this form when you have paid wages for the quarter.

Form 944 – Due Jan 31 (for IRS)
Annual wages report. You may be told to complete this form if your wages drop beneath a certain amount. Do not complete this form unless you are directed by the IRS.

Form 940 – Due Jan 31 (for IRS)
Annual form that summarizes unemployment withholding from previous year.

Form W2 – Due Jan 31 (for employee)
Form you present to employee summarizing wages paid for previous year. Your employee(s) uses this form to complete his/her personal income taxes.

Form 1099 – Due Jan 31 (for independent contractor)
Form given to independent contractors, summarizing what you paid them the previous year.

Form W3 – Paper copy due Feb 28 OR e-file due Mar 31 (for SSA)
Summary of wages paid from previous year to be submitted to Social Security Administration. Along with this form, you should also submit copies of each W2 and 1099 forms that you presented to your employees and independent contractors.

These are only the federal forms required. You will want to also check your specific state requirements. Also, I will talk more about the differences between employees and independent contractors in the future.

Legal Documents For New Employees

So you’ve made the decision to take on a new employee. You put word out there, conducted your interviews, and narrowed it down to one. Now what?

Here is some info on what you need to do to properly and legally hire a new employee.

W-4 Form
Have your employee complete this form. It is a federal form that collects pertinent information and determines how much withholding should be taken from each paycheck.

I-9 Form
Another federal form that verifies the employee is legally allowed to work in the States. You will need to make a copy of a valid ID and attach. You must keep this on file and available for any government agency to verify.

New Hire Reporting
Each state has its own policies on how this should be done. Wisconsin has a website for employers to submit new employee information. They request a copy of the W-4 form as well. Also note the time frame in which this should be done.

As far as getting your new employee up and running, you only have to complete these three items. The next step you will want to take care of is setting up a payroll system. Look for instructions on that in a future post.

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Producing a Positive Monthly Cash Flow

Cash flow is a key indicator of the strength and vitality of any business. It is defined as the net amount of money your business takes in or spends in a given time frame. If you specify the time frame as one year, you are essentially calculating your annual net profit.

The wedding industry can be very seasonal, depending on the specific business you conduct and/or the part of the country in which you reside. “Engagement season” may mean a lot of deposits, “planning season” will bring about additional expenses, and “wedding season” means final payments, but also additional payroll expenses. You may even have a fourth season in there that results in no cash flow at all!

I want to challenge you to strategize your business in a way that will allow it to produce a positive monthly cash flow.

Now, I am not saying that this is necessary for a business to be successful. Perhaps you take three months off during the winter and don’t want to worry about anything during that time. Trust me, I understand. I make 60% of my annual income in 6 weeks out of the year.

I am recommending this strategy for someone who conducts business all year-round and is looking for a way to stay profitable through the slow times, rather than stressing out and dreading tax day.

So what can you do during your slower months to boost your revenue? As a wedding planner, offer hourly consultations. Maybe you can package three or four together and guarantee your client will come back for four consecutive months. How about engagement planning? Photographers can create customized Christmas cards for their clients over the past year. If a stationer, create your own greeting card line and sell them at local boutiques, or online for that matter.

The idea is basically to be making some sort of profit every month. If you set a monthly goal with which you are satisfied, you will no longer depend on the big months, but rather enjoy the extra income they bring.

What are some things you have done to increase your monthly cash flow?

The Extra Costs of Having Employees

If you are considering hiring an employee and are unsure of the extra costs that this would incur, this post is for you.

You are probably already aware that if you hire an assistant or an intern, you need to factor in more than just their base pay. But how much? If you are going to do it right (legally), below are some things you should consider:

[Some expenses below vary by state. For ease of explanation, I used Wisconsin rates as an example. I would be happy to research your own state for you if you are interested. Please inquire!]

Base Pay: This is the one thing you can control! What can you afford? What is your employee worth?

Social Security: This is a federal tax. The 2009 rate requires you to withhold 6.2% of the gross pay from the employees check and requires you to pay an equal amount (6.2%) out of your own pocket.

Medicare: This works the same way as Social Security. The rate is 1.45% for both you and your employee.

Unemployment Insurance:
Federal: Maximum tax of $56 per employee per year (the amount could be less based on gross wages and/or how long the employee works for you)
State: This rate definitely varies. For newer businesses in WI the rate is 3.25%.
Unemployment Insurance payments are paid out of the employer’s pocket, not employee withholding.

Workman’s Compensation Insurance: The purpose of this insurance is to cover your employees if they are injured on the job. It is required in every state (except Texas), but rates will vary. We pay $0.72 per $100 of gross wages. Wisconsin requires that a minimum premium amount be met. After all is said and done, it amounts to about 2% of gross wages.

NOTE: Work comp. rates are heavily determined by the type of tasks your employees will be performing. (There is obviously more risk for someone who does on-site installations versus someone who does office work.) Do not let the insurance agency who handles your work comp. insurance enter a classification code that does not describe your employees’ tasks. This happened with our policy and I had to go through a long process of getting it changed. We ended up saving $800 by making sure everything was straight, so it was worth it.

When you add all of this up, it comes out to approximately 13% of gross pay. A $10 per hour job has just become $11.30. This obviously does not include extra costs such as health benefits, parking, payroll software, and much more depending on your specific business.

In a future post, I will cover the how-to of processing the necessary payroll paperwork.

What other expenses (direct or indirect) do you find yourself incurring with the hiring of employees?

Learning What You Need to Succeed RECAP

As I mentioned in the beginning of this series, the five “keys to success” that I discussed were specific to my own needs as a business owner and entrepreneur. I realized these needs of mine through past business experiences and writing them down has helped me keep them on the forefront of my mind.

I hope you have been able to apply some of these strategies to your own life, and have also been able to come up with your own. If you take the time to look back at some key moments in your history, it won’t take long for you to recall some of your own strengths and weaknesses. Consider what those might be, and come up with an action plan to overcome those weaknesses and benefit from your strengths.

Think of a time when you received much praise, or were awarded something based on your achievements. What did you do to get to that point?

What about a time when you failed, or didn’t meet up to the expectations? Why not, and how can you surpass those expectations next time?

When do you feel most confident? When do you feel completely incapable?

What inspires you? What causes you to lose all motivation to move forward?

If you take the time to analyze these questions, you will learn so much about yourself, and will also be miles ahead of those who are afraid to face their own insecurities and tackle their weaknesses.

Are you willing to do what it takes to succeed?

Learning What You Need to Succeed Part 5

5. Surround yourself with experts

I’ve always felt weird about the term “self-made millionaire”. In fact, the image it portrays in my head is quite sad. I picture a person who has finally “made it” (I use that in the loosest terms possible), and had no help or support from anyone along the way. I know I may be using a strict interpretation of the phrase, but it still provokes some interesting thought.

Will you one day be declared ‘self-made’ or will you be able to point to people and resources that have guided your success? Much wisdom can be gained from those who have gone before us. If you haven’t already, seek out a mentor that you can learn from and consider anything they may have to say. Look for someone in your industry that has years on you or has already retired.

The week before my rummage event took place I received a random phone call at night. The older gentleman on the other end of the line started asking me all about the event I was putting on. His questions were very pointed – almost like he was quizzing me.

It turns out that he was a very well-known promoter in our area since the early 70’s. He is no longer in the business, but is still very connected with those who are. As he was shooting down every response I had (apparently, I was doing everything wrong!), part of me wanted to dismiss him and continue on in my blind ways. But instead, I decided to keep listening, filtering everything he had to say.

In fact, all weekend I had curious promoters visiting my event to see what was going on. They each had their own ideas about what was going well and what could be done better. The best thing to do was to keep smiling and soak it all in.

Are you turning down potential quality advice from anyone? Don’t feel like you have to do this on your own.

Sure it says a lot about a person who went from rags to riches by their own will-power. But is the lonely journey to get there worth the title?