What Is Tax Remittance and How Does It Work?

Tax remittance is the process where a third party, most often a business, collects or withholds taxes owed to a government agency and then sends that money to the agency. This function positions the business as an intermediary, simplifying tax collection for federal, state, and local authorities. When a business collects these funds, it holds them in trust and has a legal duty to accurately report and transfer them to the correct government body. Failure to properly remit these taxes can lead to significant financial penalties and legal consequences.

Common Types of Remitted Taxes

One of the most frequent types of remitted tax is sales tax. Businesses collect this tax from customers on taxable goods and services at the point of sale. The amount collected is determined by state and local tax laws, and the business sends these funds to the appropriate tax authority on a predetermined schedule.

Another major category is payroll taxes, which are withheld from an employee’s wages. This includes federal income tax, which the employer calculates and withholds based on the employee’s Form W-4 information. The employer remits these withheld taxes to the Internal Revenue Service (IRS).

In addition to income tax, payroll remittances include taxes under the Federal Insurance Contributions Act (FICA). FICA consists of two separate taxes: Social Security and Medicare. Employers withhold the employee’s share of these taxes from their paycheck and are also required to pay a matching employer portion. Both the employee’s withheld amount and the employer’s matching contribution are sent to the IRS.

Information and Forms for Remittance

Before payment is sent, a business must gather information to calculate its tax liability. For sales tax, this involves compiling data on total sales and, more specifically, total taxable sales for the reporting period. The business must differentiate between taxable and non-taxable sales to determine the correct amount of tax owed to state and local authorities. This information is used to complete a sales tax return form for the business’s state or locality.

For federal payroll taxes, the primary document is Form 941, the Employer’s Quarterly Federal Tax Return. To complete this form, an employer needs detailed records of gross wages paid to all employees, tips reported, and the total amounts of federal income tax, Social Security tax, and Medicare tax withheld from those wages. The form requires the calculation of both the employee and employer portions of Social Security and Medicare taxes. State-specific sales tax forms are available through the respective state’s department of revenue.

How to Submit Tax Remittances

For federal payroll taxes reported on Form 941, most businesses are required to use the Electronic Federal Tax Payment System (EFTPS). This online portal allows businesses to schedule payments securely. After a payment is made through EFTPS, the system provides a confirmation number that serves as a receipt.

For state-level sales tax, submission methods often involve a dedicated online portal managed by the state’s revenue agency. Businesses log in to their account, enter their calculated tax figures from their sales tax return, and authorize a payment from their business bank account. Some jurisdictions may still permit payment by mail, which requires sending a physical check along with the completed paper tax form to the address specified by the tax authority. It is important to retain proof of submission, such as a digital confirmation or a mailing receipt.