National Small Business Week: E-file, the best way to report payroll taxes

IR-2022-103, May 5, 2022

WASHINGTON – The Internal Revenue Service today urged small businesses to take advantage of the accuracy, speed and convenience of filing their payroll tax returns and making tax payments electronically.

During National Small Business Week, May 1 to 7, the IRS is highlighting tax benefits and resources tied to the theme for this year's celebration: "Building a Better America through Entrepreneurship." Filing and paying taxes electronically helps entrepreneurs leave more time for what they really want to do—build their businesses.

What are payroll taxes?

Also known as employment taxes, payroll taxes include federal income tax withheld from employee wages, as well as both the employer and employee portions of Social Security and Medicare taxes. In addition, payroll taxes include the Federal Unemployment Tax, also known as FUTA, which most employers need to pay but is not withheld from employee wages.

In some cases, backup withholding applies to payments made to nonemployees, usually because the recipient failed to provide their correct Taxpayer Identification Number (TIN), to the business making the payments. A TIN can be either a social security number, employer identification number or individual taxpayer identification number. For more information about backup withholding see Tax Topic No. 307.

Why e-file?

All of the returns reporting these taxes can either be filed electronically or on paper. Though the number of payroll tax returns e-filed has grown steadily in recent years—more than doubling in the last decade alone, more than 40% of them are still filed on paper.

Paper filers are missing out on all the advantages of electronic filing. E-file saves time, and it's secure and accurate. Plus, the IRS acknowledges receipt of an electronically filed return within 24 hours. That doesn't happen with paper filing.

It's much easier to make a mistake on paper. With electronic filing, any mistake is often discovered and fixed quickly. With paper filing, it may take weeks or even months to discover and correct a mistake.

How to e-file

Employers have two options: Do it themselves or have a tax pro do it for them. Those choosing to do it themselves will need to purchase IRS-approved software. Alternatively, the Authorized IRS e-file Providers Locator Service, an online database, can help any employer find a suitable tax professional.

For more information about both options, visit IRS.gov/employmentefile.

Pay taxes electronically

Though some employers, especially those with small payrolls, can choose to pay their taxes when they file their payroll tax returns, most need to deposit them regularly with the Treasury Department instead. Federal tax deposits must be made by electronic funds transfer (EFT).

The fastest and easiest way to do that is through the Electronic Federal Tax Payments System (EFTPS), a free service available from the Treasury Department. Payments can be made either online or by phone. Any business or individual can also use EFTPS to pay other federal taxes, including quarterly estimated taxes.

Enrollment is required. To enroll or for more information, visit EFTPS.gov or call 800-555-4477 or TDD: 800-733-4829.

More information about the tax rules that apply to employers can be found in Publication 15, (Circular E), Employer's Tax Guide, available on IRS.gov.