State Reporting
State withholding tax reports for states with income taxes are due either monthly or quarterly, depending on the amount of taxes required to be paid. Check with your state taxation department. Some states also let you pay electronically.

State unemployment tax returns are due quarterly. In most states this is a tax borne entirely by the employer.

Some states also have a quarterly workers compensation tax, although most states let employers purchase workers compensation insurance from private insurance companies.

State and local payroll tax returns are typically paid when the return is filed for most smaller businesses. Small businesses rarely have high enough state tax bills to require daily deposits.

State Unemployment
State unemployment tax rates fluctuate from year to year, and can be very confusing to business owners. The legislature sets a base rate. The state employment security commission either adds or subtracts from this rate based upon a complex formula that takes into account the "savings account" balance you have built with the government, potential or current withdrawals from that account by ex-employees, and the size of the payroll. The tax can soar for several years with only one or two claims. In some states, the lowest possible rate after several years is no tax at all.

To keep your tax bill low, you should look into the circumstances where you are allowed to deny a claim. For example, in many states you can deny an unemployment claim against your account when the employee quits, or is fired for violating the law.

Year End Reporting
The federal unemployment tax (called FUTA) is declared on Form 940, which is filed once a year by January 31^st. However, you must make quarterly deposits if the cumulative liability exceeds $100. The quarterly deposits are made using the same coupons or electronic filing as your 941 payments, just checking the 940 box on the coupon.

At the year end, you need to file some annual reconciliations. The federal government requires you to file summaries of what you paid each employee and what you withheld from each of them on W-2 forms. In addition, you must include a W-3 form, which is like a "cover letter" summarizing all the W-2 forms. The W-3 and W-2s are sent to the Social Security Administration (not the IRS). States with an income tax also require an annual reconciliation along with copies of the W-2s. Some states also require proof of workers compensation coverage with the annual wage reconciliation. The employee copies are due to the employee by January 31^st, while the government copies are due by February 28^th.

The Social Security Administration shares the details with the IRS. The IRS matches the W-3 totals to the total of each of the withholdings and taxes reported on the quarterly 941 returns. The IRS, state taxation departments, and state employment security commissions all swap data to see if everything matches up. Any discrepancies will cost you penalties from somebody.