Employer's Tax Guide

When you pay your employees, you don't pay them all the money they earned. As their employer, you have the added responsibility of withholding taxes from their paychecks. The federal income tax and employees' share of social security and Medicare taxes that you withhold from your employees' paychecks are part of their wages that you pay to the U.S. Treasury instead of to your employees.

Your employees trust that you pay the withheld taxes to the U.S. Treasury by making federal tax deposits. This is the reason that these withheld taxes are called trust fund taxes. If federal income, social security, or Medicare taxes that must be withheld aren't withheld or aren't deposited or paid to the U.S. Treasury, the trust fund recovery penalty may apply.

Keep all records of employment taxes for at least 4 years. These should be available for IRS review. Your records should include the following information.

• Your EIN.

• Amounts and dates of all wage, annuity, and pension payments.

• Amounts of tips reported to you by your employees.

• Records of allocated tips.

• The fair market value of in-kind wages paid.

• Names, addresses, SSNs, and occupations of employees and recipients.

• Any employee copies of Forms W-2 and W-2c returned to you as undeliverable.

• Dates of employment for each employee.

• Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them.

• Copies of employees' and recipients' income tax withholding certificates (Forms W-4, W-4P, W-4(SP), W-4S, and W-4V).

• Dates and amounts of tax deposits you made and acknowledgment numbers for deposits made by EFTPS.

• Copies of returns filed and confirmation numbers.

• Records of fringe benefits and expense reimbursements provided to your employees, including substantiation.

• Documentation to substantiate any credits claimed. Records related to qualified sick leave wages and qualified family leave wages for leave taken after March 31, 2021, and records related to qualified wages for the employee retention credit paid after June 30, 2021, should be kept for at least 6 years.

• Documentation to substantiate the amount of any employer or employee share of social security tax that you deferred and paid for 2020.