US payroll: W-2, W-4, FICA, FUTA & withholding
US payroll has four moving parts every pay cycle — federal income tax (per the employee's W-4), FICA (Social Security + Medicare, split employer / employee), state income tax (per state), and unemployment (FUTA federal + SUTA state, employer-only). Get the deposit schedule wrong and the IRS assesses Trust Fund Recovery Penalties on the officer personally.
The four payroll taxes
| Tax | Rate | Who pays | Wage cap |
|---|---|---|---|
| Federal income tax | Per W-4 worksheet | Employee (employer withholds) | No cap |
| Social Security (FICA) | 6.2% + 6.2% = 12.4% | Split 50/50 | $168,600 (2024) |
| Medicare (FICA) | 1.45% + 1.45% = 2.9% (+0.9% employee surtax over $200k) | Split 50/50 | No cap |
| FUTA (federal unemployment) | 0.6% net (after 5.4% SUTA credit) | Employer only | $7,000 |
| SUTA (state unemployment) | Varies — typically 0.5%–10% by experience | Employer only (most states) | State-specific |
| State income tax | Varies; nine states have none | Employee (employer withholds) | State-specific |
The nine no-state-income-tax states: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming. (Washington has a separate Capital Gains Tax that does not apply to wages.)
The two W-4 versions you'll see
The IRS overhauled Form W-4 in 2020. The new form replaced "allowances" with five steps: (1) personal info, (2) multiple-jobs adjustment, (3) dependents, (4) other adjustments, and (5) signature. Employees hired before 2020 may still be on a legacy allowance-based W-4 — that's fine, you don't have to make them refile. New hires from 2020 onward must use the current form.
HelloBooks reads both versions and computes withholding correctly either way using the IRS Publication 15-T withholding tables.
Deposit schedule — monthly or semi-weekly
The IRS assigns your deposit schedule each year based on your lookback-period liability (July 1 to June 30, two years before):
- Monthly — total lookback liability ≤ $50,000. Deposit by the 15th of the month following the pay period.
- Semi-weekly— total lookback liability > $50,000. Deposit Wednesday for wages paid Wed/Thu/Fri, or Friday for wages paid Sat/Sun/Mon/Tue.
- Next-day rule overlays both schedules — if you accumulate $100,000 or more in a single deposit period, deposit the next business day.
Missing a deposit triggers the Trust Fund Recovery Penalty — 100% of the unpaid trust-fund portion (employee withholding + employee FICA), assessed personally against any officer or person with authority over payroll. It's one of the few taxes that pierces the corporate veil.
Quarterly Form 941 and the year-end W-2 cycle
Form 941 reports payroll taxes for the quarter — total wages, federal income tax withheld, FICA wages and tax, and the deposits you made. Due the last day of the month after the quarter (April 30, July 31, October 31, January 31). The year-fourth-quarter 941 due January 31 is harmonized with the W-2 due date — file both at the same time.
Form 940 is the annual FUTA return — due January 31.
Form W-2 / W-3 — issue W-2 Copy B to each employee by January 31, file Copy A + W-3 transmittal with SSA by January 31 (most filers must e-file via BSO if total information returns ≥ 10).
How HelloBooks does this (US payroll via Gusto — private preview)
HelloBooks runs US payroll through a Gusto integration that's currently in private preview. The end-to-end workflow described below — secure W-4 / I-9 onboarding, per-cycle pay runs with FICA + FUTA + state withholding, IRS-schedule deposits, Form 941 quarterly, and the W-2 / W-3 year-end cycle — is real and available on request ahead of general availability.
- 1
Get an EIN and register with state agencies
Apply for a Federal Employer Identification Number (EIN) on IRS.gov — free, instant. Then register with your state's tax agency (income-tax withholding) and unemployment agency (SUTA). HelloBooks tracks each registration and your assigned deposit schedule.
- 2
Collect W-4 and I-9 at onboarding
Each new hire fills out Form W-4 (federal withholding) and Form I-9 (work authorization). HelloBooks emails the new hire a secure link to complete both and stores them on the employee record. Add state withholding forms where required (e.g., DE-4 in California).
- 3
Run each pay cycle
HelloBooks computes gross pay from timesheets (HelloTime sync) or salaried defaults, then federal income tax (per W-4 worksheet), FICA (7.65% employee + 7.65% employer), state income tax, SUTA, and FUTA. Issue ACH or printed paychecks, post the journal entry to the books, and mark the pay run complete.
- 4
Deposit federal and state tax on schedule
Deposit federal tax via EFTPS on your monthly or semi-weekly schedule. Deposit state tax on the state portal. HelloBooks tracks every deposit, the deposit period, and the deposit reference so the Form 941 quarterly return reconciles cleanly.
- 5
File 941 quarterly and W-2 / W-3 at year-end
Form 941 prepares automatically each quarter from the pay-run history — review and e-file. In January, the W-2 wizard generates Copy B for each employee, the EFW2 file for SSA BSO upload, and the Form W-3 transmittal. State equivalents file from the same data.
Frequently asked questions
What's the difference between a W-4 and a W-2?
A W-4 is what an employee fills out when they start working — it tells you how much federal income tax to withhold from each paycheck. A W-2 is what you issue at year-end summarizing total wages paid, federal/state tax withheld, Social Security wages, and Medicare wages for the calendar year. Employees use the W-2 to file their personal Form 1040.
What is FICA and how is it split between employer and employee?
FICA is the Federal Insurance Contributions Act tax — Social Security (6.2%) + Medicare (1.45%) = 7.65% on each side. Both the employer and the employee pay 7.65%, so the total is 15.3% of wages. Social Security stops at the annual wage base (currently $168,600 in 2024, indexed yearly); Medicare has no wage cap. Wages above $200,000 trigger an additional 0.9% employee-only Medicare surtax.
What is FUTA and SUTA?
FUTA is the Federal Unemployment Tax Act — 6.0% on the first $7,000 of each employee's wages, paid by the employer. Most employers get a credit of 5.4% if they pay state unemployment tax on time, dropping the effective FUTA rate to 0.6% (= $42 per employee per year). SUTA is the state equivalent, with rates and wage bases set by each state's unemployment agency. SUTA rates vary by employer based on industry and prior unemployment-claim experience.
How often do I have to deposit federal payroll tax?
Either monthly or semi-weekly, determined by your IRS deposit schedule. The IRS publishes the schedule in November based on your tax liability during a 12-month lookback period ending June 30. Monthly: deposit by the 15th of the following month. Semi-weekly: deposit Wednesday for wages paid Wed/Thu/Fri, or Friday for wages paid Sat/Sun/Mon/Tue. New employers default to monthly.
What forms do I file each quarter and at year-end?
Quarterly: Form 941 (Employer's Quarterly Federal Tax Return) due the last day of the month after the quarter ends — April 30, July 31, October 31, January 31. Year-end: Form W-2 to each employee and Form W-3 transmittal to the SSA by January 31; Form 940 (FUTA) by January 31. State equivalents (DE-9 in California, NYS-45 in New York, etc.) follow their own state schedules.
What's the difference between an employee and an independent contractor?
An employee works under your direction and control — you decide when, where, and how they work, and you provide tools. An independent contractor controls their own work and is in business for themselves. The IRS applies three categories of facts: behavioral control, financial control, and the type of relationship. Misclassifying an employee as a contractor exposes you to back payroll tax, penalties, and interest. When in doubt, file Form SS-8 to ask the IRS for a determination.
Do I have to e-file W-2s?
Yes if you file 10 or more information returns of any type combined (W-2s + 1099s + others) in a calendar year. The 10-return threshold dropped from 250 starting tax year 2023 and applies to the aggregate count across return types. E-file through the SSA's Business Services Online portal — they accept W-2 and W-3 in the EFW2 format. HelloBooks generates the EFW2 file ready to upload.
What is the new-hire reporting requirement?
Every state requires employers to report new hires (and rehires) to the state's New Hire Directory within 20 days of the hire date — some states require it sooner. The data feeds the federal Office of Child Support Enforcement to enforce child support orders and detect unemployment fraud. HelloBooks prompts for the report at the moment you onboard a new W-2 employee.
More on US compliance
US Sales Tax: Nexus, Marketplace Facilitator & Multi-State Filing
Nexus thresholds after Wayfair, marketplace facilitator rules, and the registration / collection / remittance loop for multi-state SMBs.
Read sales tax1099-NEC and 1099-MISC Filing: Thresholds, Forms & Due Dates
When to issue 1099-NEC vs 1099-MISC, the $600 threshold, January 31 due dates, and W-9 collection workflow.
Read 1099 filingState Franchise Tax: Delaware, California, Texas & New York
The flat-fee state taxes LLCs and corporations owe just for existing — DE annual report, CA $800 minimum, TX margin, NY biennial.
Read franchise taxQuarterly Estimated Tax: Form 1040-ES, Safe Harbor & Due Dates
How to compute Form 1040-ES, the safe-harbor rules, the four due dates, and how HelloBooks pre-fills the worksheet from your books.
Read quarterly estimated taxAuthoritative sources
US tax rules change every filing season. Always verify the current position with the official sources below before filing.
- IRS — irs.govInternal Revenue Service. Forms, publications, due dates, and current-year thresholds for federal income tax, payroll tax, and 1099 reporting.
- IRS — Forms & InstructionsCanonical PDF forms (W-4, W-9, 1099-NEC, 1040-ES, 941, 940, W-2, W-3) with current-year instructions.
- SSA — Business Services OnlineSocial Security Administration portal for W-2 / W-3 e-filing, EIN verification, and AccuWage validation.
- Streamlined Sales Tax — streamlinedsalestax.orgMulti-state Streamlined Sales and Use Tax Agreement (SSUTA) — registration in 24 SST member states with one application.
- Tax Foundation — Sales Tax & NexusIndependent state-by-state research on sales tax rates, economic nexus thresholds, and franchise / margin tax structures.
Run all of this on autopilot in HelloBooks
US sales tax, state franchise tax, and quarterly estimated tax workflows are built into the free plan. Plaid connects 11,000+ US banks so transactions land in your books automatically. 1099 generation and Gusto-backed payroll are in private preview — ask us for access.