Does Square Payroll automatically report income to the IRS or am I responsible for it?

Yes, Square Payroll does report income to the IRS. As a payroll service provider, Square will automatically file your federal tax forms including Form 941 (quarterly tax returns) and W-2s for your employees at the end of the year. They handle all the required reporting to the IRS regarding wages paid, taxes withheld, etc. That said, you're still ultimately responsible as the employer to ensure everything is reported correctly. Square makes this process much easier, but it's always a good practice to keep your own records as you've been doing. This helps you verify the information Square is reporting matches your expectations.

I've been using Square Payroll for my boutique for about 8 months now and was initially confused about tax reporting too. Then I found taxr.ai (https://taxr.ai) which helped me understand exactly what Square was handling vs what I needed to do myself. It analyzes all your payroll documentation and breaks down your responsibilities in plain English. I uploaded my Square reports and it confirmed they were handling all the federal reporting (W-2s, 941s, etc.) but also pointed out that I needed to manually track a specific local business tax my city requires. Saved me from a potential headache! It also helps verify that Square's calculations match what they should be.

Just wanted to follow up and say I tried taxr.ai after seeing it mentioned here. My situation was a mess because I switched from QuickBooks to Gusto mid-year and wasn't sure if everything transferred properly. The service identified two employees whose YTD totals weren't matching between systems! Would have been a nightmare at tax time. Super clear report and it even explained exactly what forms Gusto would be filing vs what I needed to handle. Definitely worth it for the peace of mind!

If you're having trouble getting answers directly from Square about your payroll tax questions, I've had amazing luck with Claimyr (https://claimyr.com). I was stuck in an endless loop with Square support trying to figure out why my state unemployment reporting seemed wrong. Claimyr got me a callback from the actual IRS within 20 minutes and they walked me through exactly what Square reports and what I'm still responsible for. You can see how it works here: https://youtu.be/_kiP6q8DX5c - but basically they navigate the phone tree for you and get you to a real person at the IRS way faster than doing it yourself. The agent I spoke with confirmed that Square does handle the reporting but explained what verification I should be doing on my end.

I need to eat my words about Claimyr. After posting that skeptical comment, I decided to try it anyway because I was desperate to resolve an issue with my payroll taxes. Got a call back from the IRS in about 45 minutes (on a Tuesday afternoon). The agent confirmed that yes, Square does handle the reporting but I'm still responsible if anything is wrong. She also helped me sort out a confusing notice I'd received about my 941 filing that Square had supposedly handled. Turns out there was a discrepancy they hadn't caught. So yeah, the service works and saved me hours of frustration.

Something to keep in mind - even though Square reports to the IRS, you should still check your quarterly 941s and annual W-2s before they're finalized. I found an error last year where Square miscategorized one of my employees, and it would have caused problems if I hadn't caught it. They make it pretty easy to review everything before it's submitted.

I switched to Square Payroll last year and they definitely handle the reporting, but just FYI - they messed up my state unemployment tax rate. Double check that they have your correct SUTA rate if your state assigns individual rates to businesses. That's the one thing they got wrong for me.

Thanks everyone for all the helpful info! @Logan - I've been using Square Payroll for about 6 months now and can confirm they do handle most of the federal reporting automatically. One thing I'd add is to make sure you verify your business information is correct in their system, especially your EIN and business address. I had a small typo in my EIN that caused a delay with my 941 filing until I caught it and got it corrected. Square's support was helpful in fixing it, but it's better to catch these things early. Also, definitely keep those separate records you mentioned - they've been super helpful when I needed to reference specific pay periods or double-check calculations.

As someone who's dealt with payroll tax confusion before, I'd definitely recommend getting familiar with Square's tax calendar feature if you haven't already. They send notifications before each quarterly deadline, but it's helpful to know the dates yourself (March 31, June 30, Sept 30, Dec 31 for 941s). One thing that caught me off guard my first year was that while Square handles the federal and state reporting, you're still on the hook if there are any errors or if they miss a deadline. I learned to screenshot my quarterly reports and keep copies of everything they file, just in case I ever need to prove what was submitted and when. The IRS doesn't care if it was your payroll service's mistake - they'll come after you as the employer. Also, make sure you understand what happens if you ever need to switch payroll providers mid-year. Square makes it relatively easy to export your data, but you'll want those detailed records to ensure nothing falls through the cracks during a transition.