By Natalie - October 9, 2025
Categories: Accounting, Bookkeeping, Quickbooks Online

Running an auto repair shop means juggling a lot between customers, parts, technicians, and schedules. But there’s one area that can quickly turn into a nightmare if ignored, and that’s payroll taxes.

Think of them as the “ghosts” of your shop’s back office. If you miss deadlines for FUTA, state unemployment, or payroll tax filings, those ghosts don’t just disappear. They come back to haunt you in the form of IRS penalties, interest charges, and stressful notices.

In this post, we’ll break down what these payroll taxes are, why deadlines matter, and how to keep your shop safe from financial horrors.

FUTA: The Federal Unemployment Tax Act

The Federal Unemployment Tax Act (FUTA) is your shop’s contribution to the unemployment system. This tax doesn’t come out of your employees’ paychecks;  it’s an employer-only tax.

The rate starts at 6% on the first $7,000 of each employee’s wages, but if you stay on top of your state unemployment tax, you usually qualify for a credit that drops it down to just 0.6%. FUTA gets reported once a year on Form 940, but if you owe more than $500, you’ll have to make deposits each quarter.

Tips to stay on track:

  • Check your numbers quarterly so you’re not hit with a huge surprise bill.
  • Add reminders for Form 940 (due Jan 31) so it doesn’t slip through the cracks.
  • Use payroll software (like Gusto) to calculate and automatically schedule your deposits.

SUTA: Your State’s Version of FUTA

Now, every state has its own unemployment tax, too. This is called the State Unemployment Tax Act  (sometimes known as SUTA or SUI). It’s the same concept as FUTA, but the rates and rules depend on your state and are based on your shop’s track record. If you’ve had a lot of layoffs, your rate will be higher. If you hold onto your technicians and service advisors, your rate can decrease.

States also set a wage base, which means only the first chunk of each employee’s earnings gets taxed. Deadlines are usually quarterly, but again, each state makes its own rules.

Tips to stay on track:

  • Check your “experience rating.” Retaining employees helps lower your rate.
  • Line up SUTA and FUTA deadlines. Paying SUTA late can make your FUTA bill jump.
  • Use your state’s online portal if it offers one for less paperwork and faster payments.

Payroll Withholdings: The One That Trips People Up

Every time you run payroll, you’re also responsible for sending part of that money to the IRS and your state. We’re talking federal income tax, Social Security, Medicare, and maybe state or local income taxes.

Unfortunately, this isn’t your money. The IRS calls these “trust fund” taxes because you’re holding your employees’ money in trust until you hand it over. If you miss a deadline, the penalties can be tremendous.

Most smaller shops are “monthly depositors,” which means you have until the 15th of the following month to send in the money. However, if your payroll grows, you may be bumped to a “semiweekly” schedule, which means deadlines come more frequently.

Tips to stay on track:

  • Double-check each payroll. Make sure withholdings, deposits, and reports all match up.
  • Confirm your deposit schedule. As your shop grows, the rules might change.
  • Never borrow from payroll taxes. Using those funds for shop expenses is one of the fastest ways to get into hot water with the IRS.
  • Avoid all the guesswork with payroll software like Gusto, which automatically withholds, deposits, and files for you.

What Happens If You Miss Deadlines?

One missed deadline can spiral into bigger problems:

  • Late filing penalties of up to 25%.
  • Daily interest on unpaid amounts.
  • Lost FUTA credit if SUTA isn’t paid on time.
  • Audit red flags if late payments become a pattern.

Real-world example: Let’s say you owe $10,000 in payroll taxes and miss the deposit. A 5% penalty = $500 gone, just like that. Add interest, repeat it a couple of times, and suddenly you’ve burned through the profit from that recent transmission rebuild.

How to Keep Payroll From Haunting Your Shop

Thankfully, payroll doesn’t have to be scary. A few smart systems can save you from headaches:

  • Build a payroll calendar with all FUTA, SUTA, and IRS deadlines.
  • Use payroll software like Gusto to handle calculations, automate payments, and file reports on time.
  • Review payroll monthly to catch errors early.
  • Track your thresholds (like FUTA’s $500 trigger).
  • Work with a bookkeeping partner who understands the auto repair industry’s unique payroll needs.

Final Thoughts

Running an auto shop is tough enough. You don’t need payroll mistakes draining your time and money. FUTA, SUTA, and payroll withholdings might not be exciting, but they’re just as important to your business as keeping your bays full.

With the right systems and support, you can stop worrying about payroll deadlines and get back to focusing on your customers, your team, and growing your shop.

At Three Rivers Bookkeeping, we specialize in helping auto repair shops keep their payroll compliant, accurate, and stress-free. Reach out today, and let’s banish your payroll worries for good!