Understanding Your Payroll Tax Flow in 7shifts

When you submit payroll in 7shifts, there's a clear process for how your taxes are handled, from initial calculation to final payment. This guide will walk you through the journey of your payroll taxes.

Payroll Submission and Tax Calculation

Once you approve and submit your payroll for a given period, 7shifts calculates all applicable taxes. This includes:

• Employee Taxes (By Employee/ EE): These are taxes withheld from your employees' gross pay. Examples include: FICA (Social Security), Medicare, Federal Income Tax, State Income, EE Withholdings/W4 data
• Employer Taxes (By Company/Employer/ER): These are taxes that your company is responsible for paying in addition to employee wages. Examples include: ER FICA Tax, Medicare Tax, Federal Unemployment Tax (FUTA), State Unemployment Tax, Other employer-specific taxes

These tax amounts are clearly detailed in the "Taxes" tab Payroll submission and are designated on your payroll summary/journal by EE (Employee) and Employer (ER). 

How Your Tax Withholding Rates are Determined

Your tax withholding rates are determined based on your business settings within 7shifts. If you have not completed these settings, or if certain tax accounts are in an "applied for" state, a default rate may be applied. It's crucial to ensure your business settings are complete and accurate to ensure correct tax calculations. It is the employer responsibility to:

• Enter and update rates if you receive a Rate Change Notice (Payroll > Business Settings > Tax Set Up)
• Ensure your Tax Frequency settings are set as expected by your respective agencies. 
  *For Federal frequency, you need to reach out to our support team to alert our processing partner.
• Enable Third Party Authorization (TPA) in all relevant government agency accounts for successful filing. This must be accomplished outside 7shifts. Reach out to the agency if you have how-to questions.
• Approve Authorization to 7shifts Payroll (Payroll > Business Settings > Filing Authorization) 
   

The Role of Our Processing Partner (Check Technologies)

7shifts partners with Check Technologies to manage the processing of payments and handle complex tax obligations. When you submit payroll:

1. Funds Withdrawal: The total payroll cost, including both employee and employer taxes, is withdrawn from your business bank account as soon as your payroll is in Processing.
2. Tax Custody: Check holds these tax funds so you don't have to! This ensures that the money is set aside specifically for your tax obligations and will be paid on time to the correct government agencies based on the due dates and your tax frequencies. 

Understanding "Funded" and "Pending" Tax Payments

After your payroll is paid, you'll see your tax payments listed in Payroll > Taxes > Tax Payments. There are two key statuses:

• Funded: This status indicates that the necessary funds for that specific tax liability have been successfully withdrawn from your bank account and are being held by our payroll processing partner. This confirms that the money is ready for payment on the due date.
• Pending: This status means that while the funds are "Funded" and secured, the actual payment to the tax agency has not yet been initiated or completed. Taxes remain in a pending state until their official due date. The due date may not be visible in 7shifts, but rest assured, our partner is set to deposit on your frequency date. Check will attempt to pay the state or federal agency on or just before the due date. This flow ensures accurate payroll calculations and compliance with tax regulations.

Reviewing Your Tax Filings 

Section Payroll > taxes > Tax Forms should be used by employers to view and download their filed tax forms for various jurisdictions and periods. Here's a breakdown of how this area is used:

• Access Filed Forms: It serves as a central repository for tax forms that have been filed, giving employers easy access to their records.
• Jurisdiction Tracking: Employers can quickly see whether a form is Federal or State by abbreviation.
• Period Identification: Indicates the specific quarter or year the form covers.
• Filing Date Confirmation: The "Filed on" column provides the exact date the form was submitted.
• Download Capability: The download icon (down arrow with a line under it) allows employers to download a copy of the specific form for their records or for auditing purposes.
• Recap Report Review: Notably, the "Recap" report, which summarizes activity for each tax type at the end of the quarter, including credits, collections needed, and refunds.
• Historical Reference: This area acts as a historical archive of all tax filings processed through 7shifts.

What Happens if a Tax Payment Cannot Be Submitted? 

If tax payments cannot be submitted due to missing information (e.g., a Tax ID) or a lack of Third-Party Authorization (TPA) access to file:

• Payment Failure: The tax payment to the agency would fail, and it remains in a pending state in 7shifts. 7shifts cannot guarantee an alert if a tax payment fails. If you have concerns or receive a notice, alert our support team and/or work with the related tax agency. If your filing succeeded but was underpaid this is an indication your tax rates may not be up-to-date.
• Guidance and Resolution: Once you alert 7shifts support our team will escalate with our processing partner to identify the best next steps for your concerns/tax notice. Depending on the Tax notice you may experience a ~20 day investigation.
• Employer Responsibility: Ensure you have completed TPA Access and your Tax Rates are up-to-date. If you are aware of a filing failure please alert our team to request a Refile once your tax Settings are updated. We do not automatically refile failures.
• Potential Consequences: Re 7shifts Terms of Service, it is the Employer responsibility to ensure their tax agency portals are authorized, and their tax rates are up-to-date. Any penalties/interest incurred is the employer responsibility to resolve.
• Payment Responsibility: If the filing blocker is not resolved (TPA access), the employer may be responsible for making these tax payments directly to the agency themselves to avoid further penalties.

Viewing Tax Refunds and the Recap Report

If state tax payments cannot be submitted due to missing information, Check processes a refund back to the company. Federal tax liabilities must be resolved directly between the Employer and the IRS. You can view the Recap Report by navigating to Payroll > Taxes > Tax Forms.

• Refunds for state tax liabilities are typically processed by the 15th of the second month following the filing quarter (IE. Q4 refund March 15th, Q1 refund June 15th, Q2 refund Sept 15th, Q3 Refund Dec 15th).
• Refunds for federal tax liabilities are not applicable, as they are remitted on a semiweekly schedule. If a federal filing fails, the IRS will hold the funds in an unallocated account. The ER will need to contact the IRS directly to resolve the issue and allocate the payment correctly. Check cannot issue a refund in this case because the funds are no longer in Check's control.

Why are tax refunds not processed immediately? Tax refunds are not processed immediately because Check needs to ensure that all liabilities and filings for the quarter are accurately reconciled before issuing refunds. This process involves verifying that no additional payments/ adjustments are required for the quarter, and also gives the employer the opportunity to request a refile. 

The Recap Report is a summary of activity for each tax type at the end of the quarter. It outlines:

• Credits due to the company.
• Additional collections needed from the company due to any settings adjustments.
• Refunds to be issued by an agency.
• Fractional amounts written off (less than $1.00).

Where in my Recap Report will I see my refund indicated? The report includes a column for "Variance," which shows the difference between the calculated tax liability and the deposits made. If there is an overpayment, it will be categorized as a "Credit" or "Refund" in the report.

• Authority: Federal taxes are imposed by the U.S. federal government (IRS), while state taxes are imposed by individual state governments.
• Purpose & Funding: Federal taxes fund nationwide programs (e.g. Federal Income Contributions Act/ FICA, Social Security, Medicare), whereas state taxes fund state-specific services (e.g., state education, roads, local law enforcement).

Tax Types:

Federal: Includes income tax, payroll taxes (Social Security, Medicare), and federal unemployment tax (FUTA).

• Federal quarterly taxes for are typically due 1 month after quarter end. Federal quarterly taxes for Q1 are typically due by April 30th. This means any settings need to be updated in time for filing to succeed. 

State: Can include state income tax (though not all states have it), sales tax, state unemployment insurance (SUTA), and various other state-specific or local taxes

• State tax deadlines per Quarter vary by state and tax type. For example, many states align their quarterly tax deadlines with federal deadlines, meaning Q1 taxes are typically due by April 30th. However, specific due dates can differ.