Essential Guide to Payroll Tax Filing and Compliance in South Carolina

Payroll taxes are mandatory contributions employers must withhold and remit to federal and state agencies. In South Carolina, these obligations include federal income tax, FICA taxes (Social Security and Medicare), and state withholding requirements overseen by the South Carolina Department of Revenue. For business owners, understanding these rules is about staying compliant, protecting employees, and ensuring smooth payroll operations.

Failure to meet payroll tax obligations can result in costly consequences. South Carolina employers who neglect proper filings or miss tax payments may face penalties, interest charges, or audits from the IRS or state agencies. In severe cases, noncompliance can damage business credibility and create financial risks beyond the company. Precise knowledge of the process helps avoid these pitfalls.

This guide provides South Carolina employers with a step-by-step overview of payroll tax withholdings, filing requirements, and compliance strategies. It explains the difference between federal and state payroll taxes, outlines essential forms and deadlines, and highlights best practices for responding to notices. Whether you are a new small business owner or an established employer processing payroll for multiple employees, this resource will help you confidently navigate payroll tax obligations.

Understanding Payroll Tax Basics

Payroll taxes are the federal and state taxes employers withhold from an employee’s paycheck and submit to the appropriate agencies. These taxes fund programs such as Social Security, Medicare, and state income tax obligations. Employers are also responsible for contributing to certain payroll taxes, making compliance a shared responsibility between the business and the federal government.

At the federal level, payroll taxes include federal income tax, FICA taxes (Social Security and Medicare), and unemployment insurance tax. The Internal Revenue Service (IRS) oversees these employment taxes and sets the rules for calculating and submitting them. Employers must stay current with tax forms, filing status requirements, and payment schedules to avoid errors in filing payroll taxes.

In South Carolina, payroll tax withholdings are managed by the South Carolina Department of Revenue (SCDOR). State payroll taxes apply to employee wages paid within the state, and employers must withhold state income tax according to South Carolina guidelines. Compliance applies to South Carolina employers and nonresident businesses with employees earning wages in the state. Payroll administrators, HR professionals, and small companies processing payroll must maintain accurate withholding accounts to ensure timely tax deposits and quarterly reports.

Federal Payroll Tax Requirements

Employers in South Carolina must comply with federal payroll tax obligations and state rules. These federal requirements include withholding federal income tax from employee wages, paying the employer and employee share of FICA taxes, and covering unemployment insurance contributions through the Federal Unemployment Tax Act (FUTA). Each tax type has its rules, filing form, and payment schedule.

Federal Income Tax Withholding

Employers are required to withhold federal income tax from each employee’s paycheck. The amount depends on information provided on Form W-4 and the IRS withholding tables published in Publication 15-T. Employers must calculate payroll tax withholdings accurately for every pay period and submit federal tax deposits according to the required schedule. See the IRS guide to employment taxes for a detailed explanation of employer responsibilities.

Social Security and Medicare (FICA) Taxes

FICA taxes consist of Social Security and Medicare contributions. Social Security is withheld at a tax rate of 6.2% from employee wages, and employers must match this amount. Medicare is withheld at 1.45%, with employers contributing the same percentage. For higher-earning employees, wages paid over $200,000 in a calendar year are subject to an additional 0.9% Medicare tax, which is withheld from the employee but not matched by the employer.

Federal Unemployment Tax (FUTA)

FUTA taxes are paid entirely by the employer and are not deducted from an employee’s paycheck. The standard FUTA tax rate applies to each employee's first $7,000 in wages per calendar year. Employers may qualify for credits if they pay state unemployment insurance tax, reducing the effective FUTA rate. These unemployment insurance contributions help fund federal unemployment programs and support workers who lose their jobs.

Federal Deposit Schedules and Reporting

Employers must follow strict schedules for federal tax deposits. Depending on the amount of payroll tax obligations, deposits may be required monthly or semi-weekly. The IRS uses a lookback period to determine the appropriate schedule. Employers must also submit quarterly reports using Form 941 and annual reports summarizing wages paid and taxes withheld. Timely federal tax deposits are essential to avoid penalties, interest, and enforcement action.

South Carolina Payroll Tax Requirements

In addition to federal obligations, South Carolina employers must follow specific state payroll tax rules overseen by the South Carolina Department of Revenue (SCDOR). These requirements apply to wages paid within the state, certain contractor payments, and other forms of compensation paid to individuals. Employers are considered withholding agents and must set up withholding accounts, calculate tax withholding correctly, and submit tax filings on time.

Who Must Withhold

South Carolina requires withholding tax when:

• Employers have employees earning wages in the state.
• A business must make federal withholding payments and operate in South Carolina.
• More than $10,000 payments are made to nonresident contractors, royalties, or prize winners.
• Rental income is paid to nonresidents who own multiple properties in the state.

These rules apply to South Carolina employers and nonresident businesses with employees earning wages in the state. Additional requirements, such as unemployment insurance contributions, may apply if you employ four or more employees. For official guidance, consult the South Carolina Department of Revenue withholding overview, which details who must withhold, registration requirements, and filing obligations.

Key State Forms and Deadlines

Employers must complete several forms each year to remain compliant:

• Form WH-1605: Used to file quarterly withholding returns, due April 30, July 31, and October 31.
• Form WH-1606: Covers the fourth quarter and serves as the annual reconciliation, due January 31.
• W-2 and 1099 forms: Annual wage reporting forms must be submitted by January 31.
• South Carolina Form W-4: Employee withholding certificate, required for all new hires after 2019.

Employers must also prepare quarterly reports to ensure accurate employee tax filings and wage reports.

Electronic Filing Rules

South Carolina requires electronic filing for many employers. You must file electronically through MyDORWAY if you:

• Withhold $15,000 or more in state payroll taxes annually.
• Make 24 or more withholding payments in a calendar year.
• File 10 or more W-2 or 1099 forms showing withholding.

Employers who meet these thresholds must also pay electronically. The MyDORWAY portal ensures that the state payroll tax system efficiently processes withholding tax payments, quarterly withholding returns, and year-end wage reports.

Payment Schedules and Filing Rules

South Carolina employers must follow specific payment schedules to remain in compliance. These rules differ for resident and nonresident businesses, but both must align their state payroll tax withholdings with federal tax deposits where possible. Following the correct schedule prevents late tax payments and minimizes the risk of penalties.

Resident Employers

• Resident employers, whose principal business is in South Carolina, generally follow the same payment schedule used for federal tax deposits.
• If the IRS requires monthly deposits, the employer must also make state withholding payments monthly.
• Semi-weekly depositors under federal rules must use the same approach for state payroll taxes.

Nonresident Employers

• Nonresident employers with their principal businesses outside South Carolina follow a different schedule.
• Payments must be made monthly if the employer’s quarterly withholding liability is $500 or more.
• Payments may be made quarterly if the quarterly liability is under $500.
• Monthly payments are due by the 15th day of the following month. Quarterly payments are due on the last day of the month following the calendar quarter.

Important Deadlines
Employers should mark these recurring dates on their compliance calendar:

• Monthly payments: Due on the 15th of the month after the pay period.
• Quarterly payments: Due April 30, July 31, October 31, and January 31.
• Annual reconciliation: Due January 31 with Form WH-1606.

By staying current with the proper payment schedule and filing rules, South Carolina employers can ensure that payroll tax obligations are met and that all tax filings remain accurate and timely.

Getting Started with Payroll Tax Compliance

Employers new to South Carolina or those expanding operations into the state must take several steps to set up their payroll tax compliance systems. Establishing these processes early ensures that payroll tax withholdings, tax deposits, and reporting obligations are handled accurately throughout each pay period and calendar year.

Step 1 – Obtain Required Identification Numbers

• Apply for a Federal Employer Identification Number (EIN) from the IRS. This is necessary for reporting federal taxes, including employment and FUTA taxes.
• Register with the South Carolina Department of Revenue to receive a state withholding account number. This number is required to file payroll taxes and submit withholding tax returns.

Step 2 – Collect Employee Forms

• Ensure every employee completes Form W-4 for federal income tax withholding.
• Require employees to complete the South Carolina Form W-4 for state income tax purposes.
• Employers must withhold state income tax at zero allowances if an employee does not provide a valid state form.
• Employers must forward any SC W-4 claiming more than 10 allowances to the South Carolina Department within 30 days.

Step 3 – Set Up Payroll Systems

• Establish a payroll system or work with a payroll service provider to calculate employee wages, tax withholding, and employer contributions.
• Integrate current federal, FICA, and South Carolina state tax tables.
• Implement electronic filing options for both federal tax deposits and state withholding payments.
• Confirm that the system can generate accurate wage reports, quarterly reports, and year-end tax forms.

Step 4 – Establish Filing and Payment Processes

• Follow the IRS rules for federal tax deposits and ensure alignment with South Carolina’s payment schedule.
• File quarterly withholding returns and prepare annual wage reports such as W-2s and 1099s.
• Keep complete records of tax forms, wages paid, compensation paid, and tax filings for at least four years.
• Review each filing status carefully to ensure compliance and reduce the chance of errors.

By completing these steps, South Carolina employers can begin processing payroll confidently, knowing they have established the foundation for accurate withholding payments, timely tax filings, and ongoing compliance with federal and state regulations.

Responding to Payroll Tax Notices

Even when payroll systems are well managed, South Carolina employers may occasionally receive payroll tax notices from the IRS or the South Carolina Department of Revenue. These notices usually identify issues such as late filing, unpaid balances, discrepancies in wage reports, or missing tax returns. Understanding how to respond quickly is essential to avoid additional penalties and interest.

Common Reasons for Notices

• Failure to file quarterly withholding returns on time.
• Underpayment of payroll taxes or missed tax deposits.
• Discrepancies between reported employee wages and tax withholdings.
• Errors in tax forms or filing status information.

How to Respond Effectively

1. Read Carefully: Review the notice to understand the issue and confirm the tax period it applies to.
2. Verify Records: Compare the notice against your payroll records, tax returns, and wage reports.
3. Respond Promptly: Most agencies provide 30 days to reply, and failing to meet this deadline may trigger further enforcement action.
4. Keep Documentation: Maintain copies of the notice, your response, and supporting documentation for your records.
5. Seek Assistance: If the issue is complex, consult a tax professional who can help clarify the matter and provide appropriate legal or tax advice.

Timely action demonstrates good faith and prevents problems from escalating. Employers who maintain accurate payroll records, file quarterly returns correctly, and track their payment schedule closely are best positioned to resolve notices quickly and maintain compliance.

Communicating with the IRS and the South Carolina Department of Revenue

Clear communication with tax agencies is an integral part of payroll tax compliance. Whether you are making tax payments, submitting wage reports, or addressing notices, knowing how to contact the IRS and the South Carolina Department of Revenue (SCDOR) ensures faster resolutions and fewer mistakes.

IRS Communication Methods

• Online Resources: Employers can use the IRS Business Tax Account to review tax filings, manage tax deposits, and track employment taxes. The Electronic Federal Tax Payment System (EFTPS) is the standard platform for making federal tax deposits and paying payroll taxes electronically.
• Phone Support: The IRS provides business tax assistance at 1-800-829-4933 and employment tax support at 1-800-829-0115. Employers should have their EIN, financial institution information, and relevant tax periods before calling.
• Written Correspondence: If responding by mail, use the address on the IRS notice. Include your EIN, business name, and the tax year or calendar quarter. Always keep copies of correspondence and tax forms submitted.

SCDOR Communication Methods

• MyDORWAY Portal: This is the primary system for filing payroll tax withholdings, making withholding payments, and reviewing employer accounts. Employers can also file electronically and access prior tax returns through the secure portal.
• Direct Contact: Employers can call the SCDOR Withholding Tax Division at 1-844-898-8542 or email WithholdingTax@dor.sc.gov. Mailing addresses are also available for tax filings and payments, but electronic filing is strongly encouraged.

Best Practices for Clear Communication

• Always reference notice numbers, withholding accounts, or filing form identifiers in correspondence.
• Provide accurate details on wages, compensation, and the pay period involved.
• Keep detailed records of phone conversations, letters, and electronic filing confirmations.
• Respond to requests or notices within the required timeframe, usually 30 days.
• Consult a payroll service provider or tax professional to ensure responses meet agency standards when in doubt.

Effective communication helps employers quickly resolve payroll tax withholding issues, maintain accurate withholding accounts, and ensure that tax filings remain in good standing with the IRS and the South Carolina Department of Revenue.

Payment and Resolution Options

Sometimes, South Carolina employers face challenges paying payroll taxes on time or in full. The IRS and the South Carolina Department of Revenue (SCDOR) provide options to help businesses manage outstanding payroll tax obligations and avoid severe penalties.

Federal Options

• Installment Agreements: Employers who owe $25,000 or less in federal employment taxes may qualify for a monthly installment plan, allowing them to spread tax payments over time.
• Offer in Compromise: In limited cases, the IRS may agree to settle tax debt for less than the full amount owed. Strict eligibility requirements apply, and most businesses must demonstrate financial hardship.
• Currently Not Collectible Status: If paying payroll taxes would create undue financial strain, the IRS may temporarily suspend collection activity, although interest continues to accrue.

South Carolina Options

• Payment Plans: Employers who cannot pay state payroll taxes in full may request a payment schedule through the MyDORWAY system. Payment plans must be followed carefully to avoid default.
• Hardship Consideration: The SCDOR may provide relief in cases of demonstrated financial hardship, often requiring supporting documents such as recent tax returns and proof of income.
• Appeals Process: Employers may file an appeal if they disagree with an SCDOR determination. Options include informal review, formal protest, or a case before the Administrative Law Court.

Professional Help

• Certified Public Accountants (CPAs): CPAs provide tax advice, prepare tax returns, and help with financial recordkeeping.
• Tax Attorneys: Attorneys specialize in tax disputes, appeals, and negotiations with federal and state agencies.
• Enrolled Agents: These federally licensed professionals represent businesses before the IRS concerning employment taxes.
• Payroll Service Providers: Outsourced payroll services can help manage wage reports, quarterly reports, withholding payments, and tax filings to ensure ongoing compliance.

Exploring these options can help South Carolina employers resolve payroll tax obligations efficiently while protecting their business from escalating penalties or collection actions.

Employer Compliance Checklist

Compliance with federal and state payroll tax obligations requires careful organization and consistent monitoring. The following checklist gives South Carolina employers a quick reference to stay on track throughout the calendar year.

Essential Steps for Compliance

• Obtain an Employer Identification Number (EIN) from the IRS and a withholding account number from the South Carolina Department of Revenue.
• Register for online systems such as EFTPS for federal tax deposits and MyDORWAY for filing state payroll taxes and making withholding payments.
• Collect completed W-4 and South Carolina W-4 forms from all employees at the time of hire.
• Establish a payroll system or work with a payroll service provider to calculate employee wages, tax withholdings, and unemployment insurance contributions.
• File quarterly withholding returns, wage reports, and year-end tax forms such as W-2s and 1099s.
• Follow the appropriate payment schedule for federal tax deposits and state payroll taxes, including monthly or quarterly deadlines.
• Keep detailed records of wages paid, compensation paid, tax deposits, and tax filings for at least four years.

Ongoing Compliance Maintenance

• Review payroll tax withholdings monthly to ensure accuracy.
• File quarterly reports and annual reconciliations on time, including the fourth quarter filings due each January.
• Monitor updates to tax rates, FUTA taxes, and unemployment insurance tax requirements.
• Respond promptly to IRS or SCDOR notices and keep documentation of all correspondence.
• Update payroll systems when tax forms or filing status rules change.
• Consult a tax professional for legal or tax advice when complex issues arise.

This checklist helps South Carolina employers simplify payroll management, avoid missed tax filings, and maintain compliance with federal and state payroll tax obligations.

Frequently Asked Questions

What forms do I need to file for South Carolina payroll tax?

Employers must file Form WH-1605 for quarterly withholding returns, Form WH-1606 for the fourth quarter and annual reconciliation, and submit W-2 and 1099 forms each January. A South Carolina Form W-4 is required for all new employees. These filings ensure that payroll tax withholdings are accurately reported and reconciled with federal and state requirements each calendar year.

Do I need to file payroll tax returns if I didn’t withhold taxes?

Yes, South Carolina employers must file payroll tax returns for every calendar quarter, and their withholding account remains active, even if no employee wages were paid or taxes were withheld. Filing a “zero return” helps maintain account compliance and prevents unnecessary delinquent notices from the South Carolina Department of Revenue, ensuring the employer’s records remain accurate and up to date.

What happens if I miss a payroll tax deadline?

Missing payroll tax deadlines can lead to penalties, interest charges, and potential enforcement action from the IRS or the South Carolina Department of Revenue. Employers may also receive notices requiring corrective action. If this occurs, responding promptly, making overdue tax payments electronically if needed, and seeking assistance from a payroll service provider or tax professional is essential.

When am I required to file electronically in South Carolina?

Employers must file electronically through the MyDORWAY system if they withhold $15,000 or more annually, make 24 or more withholding payments yearly, or file 10 or more W-2 or 1099 forms. Filing electronically ensures faster processing of payroll tax withholdings, supports accurate wage reports, and helps businesses avoid penalties for failing to meet South Carolina’s electronic filing requirements.

What should I do if I receive a payroll tax notice?

If you receive a payroll tax notice, review it carefully to understand the issue and compare it with your records. Respond promptly, usually within 30 days, and keep copies of all correspondence. Verify that your withholding payments, quarterly reports, and wage reports were filed correctly. If the issue is complex or unclear, consult a tax professional to ensure compliance and proper resolution with the issuing agency.