Most employers know they must handle payroll efficiently. Accurately managing it keeps employees happy, maintains valuable company records, and avoids costly penalties. In any given year, the Internal Revenue Service alone may assess billions in civil penalties for individuals’ and organizations’ failure to comply with federal tax filing, reporting, and payment obligations.¹ Prioritizing payroll prowess would be wise, and it means knowing your way around a payroll form.
Companies must follow guidelines on which forms to use, when to use them, and what they must contain. Here’s the 4-1-1 on common payroll forms about which employers should be well versed.
What is a payroll form?
At its core, a payroll form is an information-gathering and storage tool. These forms help employers accomplish functions like knowing how much to pay employees and what payroll taxes to pay. They also function as a report that companies can send to the government, including the IRS.
Here we’ll cover details pertaining to several specific payroll forms as well as the basics that apply across the board.
What information does a payroll form include?
The information a form contains will be specific to its purpose. The most common details involve:
- The employee’s personal information, often including name, address, date of birth, and Social Security number.
- Withholding information, such as federal income, Social Security, and Medicare tax withheld.
- The employee’s pay. This information usually includes wages, bonuses, deferred compensation, and tips.
Why are payroll forms important?
Using certain payroll forms is required for legal and HR compliance. But they also help businesses keep track of expenses and information they will need to access again. Easy access is useful for preparing such items as an accounting or tax statement, responding to an audit, and more. For example:
They maximize payroll accuracy
Paying employees what you owe them is essential. Multiple payroll errors and delays in payment can cause frustration within the workforce and drive people to leave. Therefore, eliminating such issues can help reduce costly and unnecessary employee turnover.
In addition, an organized, transparent payroll process helps the company function efficiently and understand its cash flow more comprehensively.
Access to accurate information helps businesses at tax time
Staying ahead of federal income tax demands is a smart business move. Employers who keep tax forms updated throughout the fiscal and calendar year have the information required for tax return filing.
Correct payroll forms help companies avoid fines
Payroll form mismanagement isn’t just an operational issue; it can end up costing the company money. These fines can stem from:
- Failing to pay some part of all payroll taxes owed.
- Forgetting to submit Social Security or Medicare taxes.
- Not sending or submitting tax forms by the deadlines.
- Misclassifying workers.
Which payroll forms should companies use?
There’s a myriad of forms that may be required of an employer by the state, the IRS, and/or other regulatory bodies.
Direct deposit authorization form
This form is a non-tax payroll form. Employees complete it to permit employers to deposit their pay into an account of their choosing. This process replaces a paper check.
Time and attendance sheets
A physical or electronic time sheet allows employees to log the time spent at work during an applicable pay period. This form also helps Human Resources departments keep up with sick and vacation days. Time and attendance software can streamline how this information gets integrated with payroll processing.
Form W-4
Completed by the employee, W-4s determine for employers how much tax withholding to deduct from an employee’s pay.
Form W-2
This payroll form reports employee compensation (including health insurance) and withholding. By January 1 each year, employers must send each employee a copy of their W-2 pertaining to the previous year.
Form W-3
Summarizing the W-2s the employer sent out during the year is the W-3’s main purpose, making it possible to report total wages.
Form W-9
Employers who work with contractors, freelancers, and other independents must require them to complete this form. It will contain the information needed for reporting how much the company is paying them as nonemployees.
Form 1099
Variations of Form 1099 exist for different purposes. Among the most commonly used are 1099-MISC and 1099-NEC, for reporting nonemployee compensation and other miscellaneous income. They are used by both relevant parties for reporting money paid and received for specific types of transactions.
Form 1096
Employers use this payroll form to log all of their 1099s.
Form 940
This form reports the federal unemployment taxes an employer paid throughout the year.
Form 941
Companies use this IRS Employer’s Quarterly Federal Tax Return form to report totals of certain tax withholdings and employer-portion obligations. It should be accompanied by the company’s quarterly federal income tax payments.
Form 941-X
Employers use this to report and correct errors they’ve made on a previously filed Form 941. As with all types of payroll adjustments, timeliness is key. Corrections should be addressed as soon as an error is discovered.
Form 944
This form serves the same purpose as Form 941 for small businesses with annual tax liabilities of less than $1,000.
Form 8027
If company employees typically receive tips, this payroll form reports the total tip amounts.
Help for proper payroll reporting
Proper management and filing of payroll forms is a crucial business function. It promotes a system for accurate and prompt employee payment and helps both employers and employees avoid costly penalties. Proactively implementing processes for handling the forms and meeting the deadlines should be a top operational priority. Beyond what’s covered here, other forms may be required of your organization for compliance in maintaining payroll records. For help determining exactly what you’re required to use when and how, consult a qualified legal, tax, or third-party payroll specialist.
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1 Collections, Activities, Penalties, and Appeals, Internal Revenue Service
