FAQs

How do you make your quarterly 941 Tax Deposits (for amounts over $2500)?

The IRS is now requiring that all tax deposits (with a quarterly tax liability over $2,500) be made directly through the EFTPS website.  They will no longer be accepting the FORM 8109 Coupon as used in the past.

The process will require you to log into the following website and following the prompts to set up an account for your business.

www.eftps.gov/eftps

• Click on the ENROLLMENT tab
• Check the box that says "I accept the Privacy Act and Paperwork Reduction Act" (after reading the document)
• Select ENROLL ME AS A BUSINESS
• The BUSINESS INFORMATION section will ask you for the following:

               a)  Business EIN#, Business Name and Business Telephone #              
               b)  Contact information
               c)  Financial information (banking information)

Please complete all of the above and continue with the subsequent prompts until you have completed the application.  Kindly e-mail us when the application has been completed and accepted, and forward us a copy of the letter that you will receive in the mail.

We ask that you complete the above process as soon as possible so that if your tax deposit for the 3rd quarter (2010) is over $2,500, you are prepared to make the required deposit in a timely manner and via the EFTPS website.

General Information:

1. Terms used in this process-

  Compensation, which is comprised of 2 major components:

1. Regular Salary (frequent)- includes monthly or quarterly.
2. Bonuses (occasional)- to be approved by LLC members, according to your employment contract with your corporation/LLC.

Compensation is for actual services rendered.  Both components are subject to the following:

a.      Social Security Tax- 6.2%, paid by both the employee and employer for a total of 12.4% on the first $106,800 of compensation in 2010.

b.      Medicare Tax- 1.45%, also paid by both the employee and the employer for a total of 2.9%, on all compensation.

2. Form 941 is the replacement to the quarterly personal estimated tax (Form 1040-ES).
3. It is advisable to create an "employment agreement" with your business entity (LLC/corporation) outlining compensation to be received.
4. From the above you can see you have considerable flexibility to determine your own compensation within the following limitations:
   1. Total compensation must be reasonable, not less than 40% to 60% of net profit.
   2. All regulations regarding withholding of the payroll taxes outlined above must be complied with (i.e. Form 941 must be filed, and taxes paid, in a timely manner).
   3. The remainder of the company's net profit is not taxable for payroll tax purposes; it is only subject to Federal and State income tax.  This profit is available for distribution to owners.
5. Compensation is also subject to Federal and State unemployment taxes.  In general these are as follows, per owner/employee:
1. (State) Maximum Taxable Compensation:  $7,000-$10,00
2. (State) Range of Annual Tax:  $300-$350
3. (Federal) Maximum Taxable Compensation:  $7,000
4. (Federal) Range of Annual Tax:  $56

Quarterly Payroll Filing Requirements:

The following tasks will need to be completed when the switch is made:

1. Forms to be filed (by quarter)-
   1. Q1 (Due 4/30)- Form 941 + State Unemployment
   2. Q2 (Due 7/31)- Form 941 + State Unemployment
   3. Q3 (Due 10/31)- Form 941 + State Unemployment
   4. Q4 (Due 1/31)- Form 941 + State Unemployment

Forty-one states have a personal income tax which will be paid by the owner/employee on total compensation in addition to the payroll taxes above.

2. Payroll taxes to be paid-
   1. Payroll taxes may be paid quarterly with the filing of Form 941 if the total payroll taxes due for the quarter are less than $2,500.
   2. If, during a quarter, you pay yourself a bonus or add an employee you will likely exceed the $2,500 limit.  In this case, you are required to pay your payroll taxes on a monthly basis. 

Tax payments must be made using the Electronic Federal Tax Payment System (EFTPS) online.  To set up your password, please visit the IRS website:  www.eftps.gov/eftps

How to Minimize Your Federal Income Tax:

1. Establish a "profit sharing" plan before the end of the year.  You can shelter up to 25% of your compensation from Federal Income Tax.  A second option is a Simplified Employee Pension (SEP) plan which allows you shelter up to 20%.
2. Consider the benefits of filing an extension.  This allows you to delay funding your pension plan until the 15^th of September (provided the extension was properly filed).