As a new employer, you probably have questions about what it means to “do payroll.” This document will provide you with an introduction to payroll processing and some background about your obligations as an employer.
There are three main things you need to do related to payroll:
This introduction is designed to get you comfortable with the assistance BMA Payroll provides and to familiarize you with some common payroll jargon. For more detail, see IRS Publication 15 (Circular E)
Payroll taxes are those taxes withheld from your employees’ paychecks, as well as those taxes you pay as an employer based on the wages you pay your employees. These include:
Most payroll taxes, such as income tax, apply to all earnings. However, some taxes have what is called a wage cap–the maximum annual earnings per employee that is subject to that tax. These caps may be adjusted by the governing agency (typically annually).
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Summary of the most common payroll taxes: |
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Tax Rate |
Who Pays |
2026 Wage Cap |
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Social Security (SS) |
6.2% |
Employee and Employer |
$184,500 |
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Medicare |
Employee: 1.45% (2.35% on wages paid over $200,000) |
Employee and Employer |
unlimited |
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Personal Income Tax (PIT) |
Varies based on projected annual income |
Employee |
unlimited |
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Federal Unemployment (FUTA) |
6.0% statutory; generally 0.6% after full credit |
Employer |
$7,000 |
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State Unemployment Insurance (SUI) |
Varies based on employer’s experience rate |
Employer in all states; some states have employee contribution |
Varies by state |
2026 federal figures are based on IRS Publication 15 (Circular E) and the Social Security Administration’s 2026 contribution and benefit base. State and local rates, wage bases, and employer experience rates vary by jurisdiction and should be verified with the applicable agency.
Social Security and Medicare taxes are paid by both employers and employees. As an employer, you withhold the employee’s part of the taxes and also pay a matching amount.
The employee tax rate (amount withheld) for Social Security is 6.2%. The employer tax rate for Social Security is 6.2% (12.4% total). This tax has a wage cap, so it is calculated only up to a maximum amount of wages per employee each year. For 2026, the Social Security wage cap is $184,500, and the maximum employee withholding is $11,439.00.
The employee tax rate (amount withheld) for Medicare is 1.45% (2.35% on wages paid over $200,000). The employer tax rate for Medicare tax is also 1.45%. There is no wage cap for Medicare tax, which means the tax is paid on all of the wages that the employee earns. (The exception is exempt wages–see “Special Tax Exemptions” section.)
The amount of federal income tax withheld from an employee’s paycheck depends on the information reported on Form W-4, including filing status, dependents, other income, deductions, any multiple-jobs adjustment, and any additional amount requested, together with the employee’s wages and pay frequency.
In addition, all but nine states have a personal income tax (exceptions are Alaska (AK), Florida (FL), Nevada (NV), New Hampshire (NH), Tennessee (TN), Texas (TX), South Dakota (SD), Washington (WA), and Wyoming (WY)). It may be a flat tax rate (as in Illinois (IL)), regardless of projected income, or a graduated tax rate based on annual income, like the federal income tax.
In some states, employees also pay local tax (to cities, school districts, or counties) through their paycheck.
Form W-4. An employee reports several items on Form W-4:
The W-4 includes several worksheets intended to help the employee arrive at the most accurate projection of tax liability possible. Some states have similar forms for state tax liability.
You’ll find Form W-4, state equivalents, and other useful forms for new employees in the resources menu of your BMA Payroll account and clicking on employment forms.
The Federal Unemployment Tax Act (FUTA), together with state unemployment systems, provides unemployment compensation to eligible workers. For 2026, the FUTA tax rate is 6.0% on the first $7,000 of wages paid to each employee. Employers that qualify for the full 5.4% state unemployment tax credit have an effective FUTA rate of 0.6%, for a maximum federal liability of $42.00 per employee before any credit reduction.
However, if any of your employees are exempt from State Unemployment Insurance (for example, they are Directors or Officers), your FUTA tax may be higher. Also, if your state has borrowed funds from the federal government to cover shortfalls in its unemployment insurance program, all employers in your state may be subject to additional tax liability at the end of the year to repay those loans.
All states maintain a reserve for unemployment that is funded through an unemployment insurance tax. In most cases, SUI is paid only by the employer. Employees in some states, such as New Jersey and Pennsylvania, also contribute to SUI through their paychecks.
Most states have established a starting SUI rate for new employers. After a designated period of time, employers are assigned an experience rate, which may be higher or lower than the new employer rate depending on the employer’s reserve account balance. You will receive a notice from the state if your rate changes.
Some states administer disability insurance (SDI) or workers’ compensation as a tax collected through payroll. Many states also have a tax paid jointly with SUI that is used to fund job training programs.
Some types of employees are exempt from one or more payroll taxes, which means that they do not pay those taxes. For example, a minor working for a parent who is a sole proprietor does not have to pay social security, Medicare, or FUTA.
In addition, certain portions of regular employees’ wages may be exempt from one or more payroll taxes. For example, tax-sheltered or pretax insurance plans save both the employer and the employee money by exempting premium amounts from all federal taxes and some state taxes. Some fringe benefits, like S-Corporation owners’ health insurance, are also taxed differently from regular wages.
If your company is a not-for-profit 501(c)3 corporation, you do not pay FUTA at all–regardless of who your employees are.
BMA Payroll automatically handles the special taxability of certain wage types. If you have employees who are eligible for special tax exemptions, you can indicate this when you are setting up the employee. Your accountant can help you determine whether you have employees who fall in this category; however, most employees pay all payroll taxes.
As an employer, you remit taxes to the IRS and to your state agencies either by paying electronically or by using a form provided by the tax agency. Before we cover the timing of tax deposit due dates or deposit frequency, we’ll acquaint you with some common payroll terms.
You become liable for payroll taxes on the date you pay your employees, regardless of when they did the work associated with that paycheck. This rule is known as constructive receipt. If you only pay employees on Fridays, you only report a tax liability on Fridays, even if employees earn wages every day of the week.
A common point of confusion is when work is performed in one tax period, but employees are paid in a different tax period. The IRS only tracks when employees are paid, not the span of time when the money is earned.
Example:
XYZ’s Market pays employees every two weeks. Employees receive a paycheck on January 2, 2026, covering work performed during the pay period December 16–December 31, 2025. In which month does the tax liability for this payroll fall?
Answer: XYZ’s payroll is part of the January 2026 tax liability, even though the pay period fell completely in December 2025.
This is a reference period used by the IRS to determine your federal tax payment due dates. The IRS evaluates your tax liability during this twelve-month period and determines whether you are a monthly or a semi-weekly depositor (see below) for the coming year.
Most new employers are monthly depositors.
Refers to the span of time during which tax liabilities accumulate for each deposit due date.
The form with which a payroll deposit is submitted. When you pay electronically, you don’t need a payment coupon.
Note: The IRS has eliminated and no longer accepts the Form 8109 and 8109-B tax payment coupons. All tax payments must be made through the Electronic Federal Tax Payment System (EFTPS).
The following deposit schedules apply to all federal taxes other than FUTA.
Monthly depositors: You are generally a monthly depositor if the federal employment tax liability reported during the applicable lookback period was $50,000 or less. New employers generally start as monthly depositors. Monthly deposits are due by the 15th day of the following month, or the next business day if the due date falls on a weekend or legal holiday.
Semi-weekly depositors: If your lookback liability is greater than $50,000, you are a semi-weekly depositor. You pay taxes three banking days after the end of any semi-weekly period in which you accrued a liability. The IRS divides the week into two periods: (1) Wednesday, Thursday, and Friday, and (2) Saturday, Sunday, Monday and Tuesday. Taxes accrued during the Wednesday–Friday period are due on the following Wednesday, and taxes accrued during the Saturday–Tuesday period are due on the following Friday.
In some cases, when a bank holiday (such as July 4th or Christmas) occurs during the week, semi-weekly depositors have an extra day to make their tax payment.
Exceptions to the Deposit Schedule Rules
There are three main exceptions to the monthly and semi-weekly tax deposit requirements, as follows.
Next-Day Deposit Rule: If you accrue $100,000 or more in federal tax liability at any point during a deposit period, you must remit taxes on the next banking day. This could result from a single payroll, or it could result from multiple payrolls within a single deposit period (month or semi-week). For example, if you are a monthly depositor and pay a one-time bonus to employees that results in more than $100,000 in liability on a single day, you must pay the amount due immediately. You also become a semi-weekly depositor until your lookback liability falls below the $50,000 threshold again.
BMA Payroll automatically updates your deposit frequency requirements whenever you hit the next-day threshold.
Quarterly exemption: If you owe less than $2,500 in federal taxes for a quarter, you can choose to pay when you file your taxes at the end of the quarter (instead of making deposits during the quarter). If you’re not sure how much your business will grow, you should make more frequent deposits: the IRS will assess penalties if you owe more than $2500 at the end of a quarter and have not made tax deposits.
If you choose to make quarterly tax deposits but have $2500 or more due in a quarter, we automatically update your deposit schedule to be monthly.
Annual exemption: If the IRS has notified you in writing that you are a 944 filer, and your total annual federal tax liability is less than $2500, you can make your federal tax deposits annually. The 944 filing status is for very small employers who typically pay $4000 or less in annual wages.
Paying FUTA and SUI
Unlike other federal taxes, FUTA (federal unemployment tax) is paid on the last day of the month following the end of each quarter:
If you accrue less than $500 of FUTA liability in a quarter, you do not need to make a deposit until the following quarter.
Like FUTA, SUI is also paid once per quarter to your state.
State Withholding Schedules
Like the IRS, states have established deposit schedules for paying income tax you’ve withheld from your employees’ paychecks. When you register with the state revenue agency they notify you of your state deposit schedule.
Once you specify the deposit schedule with BMA Payroll, you don’t have to worry about the complexity of these schedules. BMA Payroll will calculate when and how much to deposit.
State Unemployment Insurance
Like FUTA, state unemployment insurance (SUI) taxes are remitted once a quarter, regardless of the employer’s size. In addition, other taxes administered by the state’s unemployment commission, such as Arizona’s Job Training Tax or New York’s Re-employment tax, tend to be paid jointly with the SUI tax on a quarterly schedule. In states such as Florida and Nevada, where there are no state taxes withheld from employees’ wages, SUI is the only payroll tax employers pay, so all employers pay taxes quarterly.
Now that you’ve given all your employees accurate paychecks and paid all the payroll taxes you owe, you’ve got one more responsibility: filing tax forms. This section provides an overview of the types of form filings required of all employers.
Form 941. Most employers file this tax form every quarter with the IRS. It compares federal payroll taxes owed with taxes paid during the quarter to determine whether your payments were timely and whether you have a balance due.
Form 944. Employers who have received written notice from the IRS may file Form 944 annually instead of Form 941 each quarter. Like Form 941, it reports wages and calculates federal payroll tax liability. Most 944 filers also pay taxes once a year.
Form 940. All employers who pay FUTA file this tax form at year end with the IRS. Like Form 941, it compares FUTA tax liability with FUTA tax payments to determine whether your deposits were timely and whether you have a balance due.
Form W-2. All employers provide Form W-2 to each employee at year end as an earnings record for income tax filing purposes. You are also responsible for filing Form W-2 with the Social Security Administration.
BMA Payroll prepares all your federal tax forms for you and files them electronically on your behalf.
Wage Reports report wages paid to each employee for a given quarter. They are sometimes combined with a quarterly contribution report that calculates SUI tax owed and is typically accompanied by the SUI payment at quarter end. Most states require both a wage report and a contribution report each quarter, either as separate forms or as a combined form. Many states also require a quarterly reconciliation for state income tax.
Annual Reconciliations. Some states require filing an annual reconciliation for income tax at the end of the year. This may or may not be accompanied by copies of employees’ W-2’s.
Cities, counties, or school districts that assess tax may also require quarterly or annual forms and may require copies of W-2’s. Check with each agency to which you pay tax.
Here are the most common questions we receive from new employers. If you have additional questions, please contact BMA Payroll Customer Support. For support hours and options, from your Online Payroll account, click Help.
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Q |
Do I need to register as an employer? |
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A |
You must register with both the federal government and your state when you hire your first employee. When you register, you are assigned a federal employer identification number (FEIN) and usually, a state employer identification number (EIN). In some states, you register with both the state revenue agency and the unemployment insurance agency. When you set up your BMA Payroll account, we can provide information and links to federal and state registration applications.
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Q |
How do I know how much to withhold? |
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A |
Have each employee complete Form W-4 so you can apply the correct federal income tax withholding based on filing status and any adjustments for dependents, other income, deductions, multiple jobs, or additional withholding. This information is entered into BMA Payroll along with any voluntary deductions, such as health insurance or retirement plan contributions, and any required involuntary deductions, such as court-ordered garnishments. |
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Q |
Is my contractor really an employee? |
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A |
The amount of control the employer has over the worker determines whether or not the worker is an employee or an independent contractor. If the employer controls what must be done and how the work gets done, and supplies the tools to complete the work, then the worker is an employee. If the worker controls how the work is to be done, the worker is self-employed. Self-employed workers usually provide their own tools and have independent businesses serving multiple clients. See IRS Publication 15, Circular E: Employer’s Tax Guide for more information regarding whether a worker is an employee or a contractor. States have their own rules as well so you will need to check with your state to have full compliance. |
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Q |
As the owner of a business, am I considered to be an employee? |
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A |
The owner, sole proprietor, or partner in a small business does not earn wages and is not considered an employee (some LLC members and S Corp owners are also not employees). Do not set up these individuals as employees in your BMA Payroll account. To confirm a worker’s employment status, talk to your accountant or see IRS Publication 15, Circular E: Employer’s Tax Guide |
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Q |
What forms must I file? |
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A |
BMA Payroll will let you know which federal and state payroll forms you must complete and file. |
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Q |
When do I pay and file taxes? |
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A |
BMA Payroll tracks your tax liability and whenever a tax must be deposited or a tax report filed. Each tax agency establishes deposit schedules for employers based upon the size of the employer’s liability. Because you are a new employer, BMA Payroll knows the deposit schedules that apply to you. |
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Q |
What is workers’ compensation insurance and do I need it? |
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A |
Workers’ compensation is a state-administered program to pay for injuries that occur in the course of employment. Workers’ compensation insurance is required for nearly all employers in all states. If you are a small business employer, consult your insurance broker. It is very important that you have adequate workers’ compensation insurance. Otherwise, if your employee is injured on the job, you may be personally liable–not only for the cost of medical treatment, but also for disability payments during the period in which the employee is unable to work. BMA Payroll can help put you in touch with an expert to go over coverage and get a policy in place. |
Glossary
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Term |
Definition |
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EIN (Employer Identification Number) or FEIN or EAN |
A 9-digit number issued by the federal government that uniquely identifies an employer. An EIN is required on all forms that you (as the employer) file for an employee. Also known as FEIN (Federal Employer Identification Number) or an EAN (Employer Account Number). To apply for an EIN, go to the Taxes & Forms section of your BMA Payroll account. |
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deposit schedule |
Tax agencies define when employers must deposit payroll taxes. New employers typically are assigned to a less frequent schedule. The IRS, for example, assigns new employers to a monthly schedule. State and local agencies define their own schedules and set their own thresholds. |
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Federal Insurance Contributions Act (FICA) |
The federal Social Security and Medicare tax law. These taxes are paid by both employee and employer and are all remitted to the federal government at the same time. |
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Federal Unemployment Tax (FUTA) |
The federal unemployment tax (generally, 0.6% of gross wages if paid on time) paid by employers only; employees do not pay this tax. |
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filing name |
The name under which you file your state and federal tax returns. The filing name of a small business is whatever you specified when you applied for your Federal Employer Identification Number (FEIN). The government sent you a letter containing both your filing name and your FEIN. Be sure you enter your filing name in BMA Payroll exactly the way it appears on this letter from the government. (Your filing name also appears in the booklet of tax payment coupons you receive from the government.) Household employers: Your filing name is not necessarily your legal name. For example, if you and your spouse file jointly, your filing name might be Martha and George Washington. |
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I-9 |
Federal form I-9 is used to verify the eligibility of individuals for employment. Employers must complete and keep on file an I-9 for each employee. (You can print Form I-9 at the Taxes & Forms section.) Your employee should provide the documents needed to verify eligibility. You are required to keep your employee’s completed I-9 form for your records. |
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Medicare tax |
Federal taxes for medical insurance. Employers pay 1.45% on all wages the employee earns. Employees pay 1.45% on wages earned up to $200,000. Employees pay 2.35% on wages earned over $200,000. (The employer portion of the Medicare tax is not subject to the Additional Medicare tax.) |
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Non-profit (501c3) corporations |
Non-profit corporations that qualify under the federal 501c3 provision of the tax code are exempt from FUTA and can be exempt from income taxes. Non-profit organizations may be able to choose a reimbursable status for SUI. See IRS Publication 557 Tax Exempt Status for Your Organization. You can specify in BMA Payroll that your employees are exempt from taxes. |
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Personal Income Tax (PIT) wages |
All wages paid during the specified period that are subject to federal, state, or local personal income tax (PIT) even if no PIT was withheld (states may have other names or abbreviations for personal income tax). |
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Personal Income Tax (PIT) withholding |
A payroll tax for a federal, state, county, or city. Local agencies may or may not require an employer to withhold PIT from a household employee’s wages. |
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Social Security tax |
Federal tax for old-age, survivors, and disability insurance. In 2026, the employee pays 6.2% and the employer pays 6.2%, for a total of 12.4%, on covered wages up to $184,500. |
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State Disability Insurance Tax (SDI) |
A state payroll tax withheld from your employees’ wages to provide benefit payments in case they are not able to work as a result of a non-occupational illness or injury. States set SDI rates. |
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SUI (State Unemployment Insurance) Tax |
A payroll tax used to pay benefits to workers who are unemployed and qualify for unemployment insurance benefits. Typically, a state has one rate for new employers and lower or higher rates for employers who have a track record for paying taxes and for claims. For example, the SUI tax rate for new employers in California is 3.4% for the first three years. In following years, the tax rate will change depending on: (1) the average payroll for the previous three years, (2) how much you paid in SUI taxes, and (3) how much money has been paid and charged to your SUI reserve account for unemployment insurance benefits for people who no longer work for you. Your rate may change based on the experience rate, which includes business climate factors as well as your own record and that of other employers. In some states, the SUI rate can change midyear. |
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wage cap |
Some taxes apply only up to a specified amount of annual wages. For 2026, employees and employers pay Social Security tax on covered wages up to $184,500. FUTA applies to the first $7,000 paid annually to each employee. Medicare has no wage cap. Wage caps vary by tax and may change annually. |
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W-2 |
Form W-2 is a federal form completed by employers to show an employee’s total income and withholding for the year. BMA Payroll creates the W-2 form for you and you fill it with various tax agencies. You must give W-2s to all employees, including terminated employees. |
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W-4 |
Form W-4 is a federal form completed by employees so the employer can withhold the correct federal income tax from the employee’s paycheck. BMA Payroll has W-4 forms available for you in the Taxes & Forms section of your account. Some states require the use of their own W-4 equivalent. |
