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Payroll Tax Requirements and Forms

Wage Withholding and Social Security/ Medicare Taxes

If you have employees, you will be responsible for withholding federal income taxes and Social Security/Medicare taxes from your employees’ wages. As the employer, you must pay an equal share of Social Security/Medicare taxes. Circular E, the federal “Employer’s Tax Guide,” is updated annually and should be used to determine the correct tax amounts. The amount of taxes withheld will determine how often you must deposit the taxes into your bank account. Deposits may be made at a Federal Deposit Bank, using Form 8109, or you may use the Electronic Federal Tax Payment System (EFTPS). EFTPS is similar to automatic bill payment. To get more information or to enroll in EFTPS, visit

Some employers are required to use EFTPS; you will be notified if this applies to you. At the end of each quarter, you must file Form 941 to report total wages paid, taxes withheld and due, and taxes deposited. If you have employees, you must withhold Colorado withholding tax from all employees working in Colorado, including non-residents. DRP 1098, “Colorado Income Tax Withholding Tables,” should be used to determine the proper withholding rates for your employees. The state requires that once you have collected more than $400 in state wage withholdings, you must file the total collected with the state when you file your next federal return. If at the end of a quarter you have still not collected $400 in wage withholdings, you must file with the state regardless of the amount due. If you annually withhold more than $50,000 in state wage withholding, you must file via Electronic Funds Transfer (EFT). If you annually withhold less than $50,000, you may elect to file via EFT or file coupon Form DR1094 with a check or money order. You may also file and pay online at online.

Unemployment Insurance

Unemployment insurance is a fund established by law to provide benefits to employees who lose their jobs through no fault of their own. Several factors determine the amount of benefits that are paid every two weeks to eligible persons actively seeking employment. As an employer, you will be required to pay both state and federal unemployment

insurance taxes. An employer must pay unemployment insurance tax on wages paid to all employees -including corporate officers. The federal unemployment insurance rate is 6.2% on the first $7,000 in wages paid to each employee every year. However, as a new employer, you should qualify for a 5.4% credit for an effective rate of 0.8%. If your federal unemployment tax liability is over $100 at the end of any quarter, you must make a deposit of the amount due. Use Form 8109 or the EFTPS system described earlier. If your liability is less than $100, the liability may be carried over and added to the next quarter. At the end of the calendar year, you must file Form 940 or 940EZ to report your total unemployment tax liability for the year. If your liability at the end of the calendar year is less than $100, you may deposit it or pay it with Form 940. Form 940 and your final unemployment tax payment are due by January 31.

All Colorado employers must also pay state unemployment insurance tax. The first $10,000 in wages paid to each employee during every calendar year is subject to state unemployment insurance tax. The current state unemployment insurance tax rate for new businesses is 1.7% plus a surcharge percentage. (NOTE: Some industries may pay a higher rate, e.g. construction trades.) You must file Form UITR-1, Unemployment Insurance Tax Report, and UITR-1(a), Unemployment Insurance Report of Workers Wages, every quarter regardless of the amount of unemployment tax due. At the end of each year, you will receive notice of your tax rate for the next calendar year based on your business’ unemployment claims history. If you purchase an existing business, you may acquire that business’ experience rating and be liable for any delinquent unemployment insurance taxes. You may receive credit for taxes paid by the previous owner on employees during the current year. For more information on forms or optional reporting methods, contact the Department of Labor and Employment, Unemployment Insurance.

Occupational Privilege Taxes

This is often referred to as the “head taxes” on individuals who work within the limits of certain cities. This tax is collected through employer and employee contributions. You must pay the employer a portion of the tax on yourself regardless of whether you are a sole proprietor, partnership or corporation. If your business is located within the limits of a city that requires this tax, you must set up an account through the city clerk’s office. Make sure to find out about your city requirements. Contact your city clerk for more information.

Employee W-2’s

At the end of the year, you are responsible for reporting wage and tax withholding information with the W-2 forms (Wage and Tax Statement). Copies of the W-2 must be sent to your employee no later than January 31. Copy A of Form W-2 must be sent to the Social Security Administration (SSA) by February 28 with Form W-3. If you file 250 or more form W-2’s, you must file the information with the SSA via magnetic media. For your Colorado employees, you must file DR 1093, Annual Transmittal of State W-2 forms. If you file250 or more form W-2s, you must report W-2information to the state via The Withholding Online System at online. The due date for W-2 submission using the “WHO” system is March 31. For more information regarding the revenue contact the Colorado Department of Revenue via e-mail, Additional information available at and FYI WITHHOLDING6 and FYI withholding 6.

Independent Contractor 1099s

If you have determined that your workers are independent contractors, you are not required to withhold or pay any taxes on their behalf. However, you must keep track of how much you pay them and file Form 1099 Miscellaneous for each person to whom you paid $600 or more during the year. The independent contractor must be sent her/his Form 1099s Miscellaneous by January 31. Copy A of Form 1099s must be sent to the IRS by February 28 with Form 1096 “Annual Summary and Transmittal of U.S. Information Return.” If you file 250 or more Form 1099s you must file via magnetic media. To order 1099s call the IRS Forms number..

Payroll Records and Audits

It is important to keep complete and accurate employee/payroll records and to retain the records for at least five years. The IRS, the Immigration and Naturalization Service, the Colorado Department of Revenue and the Colorado Department of Labor & Employment all have the authority to audit your records. Remember, your responsibilities begin as soon as you hire an employee.

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