How Do I Do My Own Payroll and Payroll Taxes?

Payroll Process and Payroll Taxes - An Employer's Checklist

Doing Payroll and Payroll Taxes
••• Payroll and Payroll Tax Tasks. GraphicaArtis#Unified ED/Getty Images

"Doing Payroll" is something many business owners hate. But if you have only a couple of employees, you may want to do it by yourself. This article is a "mini-course" in doing payroll. Just take it step by step and make sure you take note of due dates.

How to Do Your Own Payroll and Payroll Taxes 

The major steps in the payroll process are: 

1. Preparation. Before you begin to hire employees, you will need to prepare for payroll calculation and processing and decide who will do all the payroll tasks. 

2. Paying. When you have employees who have worked for your business, you must set up a system to calculate their pay, write paychecks, and distribute them. 

3. Post-payment. After you have paid employees, you must set aside money for taxes, do a payroll register, make tax payments, and send payroll reports at the correct times. 

Before you begin to hire employees:

1.  Understand your legal responsibilities as an employer, including 

2. Follow this easy 12-step checklist to make sure you complete all pre-employment tasks for employers. 

3. You will need to understand the basics of payroll and payroll processing. The easy way to do that is to go through my payroll processing course. The course is a series of newsletters that you can access through this article "Crash Course for Payroll and Payroll Processing." 

4.  You will need to make decisions on how and when to pay employees, including 

  • What employees will be hourly and which salaried?
  • How often will you pay employees - weekly, twice a month, every other week, or monthly?
  • How and when will you pay overtime?
  • How will you require hourly employees to keep track of their time?
  • What paid time off will you provide for hourly employees? You are not legally required to pay any employee for any time off, but most businesses pay for holidays, vacations, sick days, or personal days. 

5. Decide on an accounting system to use. Most small businesses use an online accounting system with a payroll processing option. You might also look into Android small business payroll apps and QuickBooks payroll online. 

6. Collect the paperwork needed for new hires to sign. Each new employee must complete certain paperwork at hire. You as the employer must be certain that the new hire forms and application are completed and filed. These forms include:

  • A W-4 Form to designate withholding
  • An application form
  • An I-9 Form to show eligibility to work in the U.S., and
  • State and local tax withholding election documents.

Paying Employees

Finally, you have employees, they have worked for a pay period, and you are ready to pay them. 

Making Payroll Tax Deposits

Depending on the size of your payroll, you must make payroll tax deposits to the IRS on a semi-weekly or monthly basis for:

  • the amounts you withheld from employee pay for federal and state income taxes
  • the amounts you deducted from employee pay for Social Security and Medicare
  • the amounts you owe as an employer for Social Security and Medicare.

You can make your payroll tax deposit payments on Form 8109 or using the IRS electronic filing system (EFTPS).

Other Payroll Tax Deposits

In addition to federal withholding and Social Security/Medicare deduction payments, you must:

  • Make payments for federal unemployment tax on a regular basis.
  • Make payroll tax deposits to your state, and possibly your locality in addition to federal payroll tax deposits.

Payroll Tax Reporting

Businesses are also required to submit payroll tax reports on a regular basis. You must:

  • Submit a quarterly report to the IRS on Form 941 showing the amount of your payroll tax liability and the amounts you have paid on this liability during the previous quarter.
  • Submit an annual unemployment tax report on Form 944 to the IRS showing the amount of your unemployment tax liability and the amounts you have paid on this liability.
  • Submit other state unemployment and worker's compensation reports.

Create a Payroll Register

To keep track of all payroll information for each employee, you will need to create and maintain a payroll register. Most online accounting system have a payroll register as part of their package of reports, but just in case, here's the information on what to include in that document. You will need it for year-end payroll totals and reports. 

Finally, Set up a Yearly Tax Calendar

Creating and maintaining a month-by-month payroll tax calendar, either on your accounting/payroll software or manually, will help you keep track of all those payroll tax dates during the year. Add in your state's payroll tax dates for a complete calendar.