Payroll

Payroll in the U.S.: What It Costs and What You Get

Quick Answer

Payroll service at Illion Tax & accounting starts at $100. The setup consists of one-time items: federal employer registration is $130, state employer registration is $100 where required, a New Hire Report for each officially hired employee is $50, and payroll calculation covering federal and state taxes is $30 per person.

Ongoing service runs $300 per quarter plus $100 a year for W-2 filing. That covers monthly federal tax payments ($20 a month or $50 a quarter), quarterly federal report preparation ($75 a quarter), quarterly state tax payments ($50), and preparation of the quarterly payroll report ($100).

For an S-corp owner, payroll isn’t optional — it’s the condition that keeps the tax savings intact, because the IRS requires a reasonable salary. Clients who file 1120, 1120S or 1065 returns with us get personal returns at 25% off, provided the business return isn’t already discounted.

What the Service Includes

Payroll is far more than sending money to an employee. It’s a chain of registrations, withholdings, payments and reports, each with its own deadline. Here’s everything we take on.

• Registering the company as an employer with the IRS, including the credentials needed to pay federal payroll taxes — $130.
• Registering as an employer with the state revenue department and workforce agency for unemployment contributions — $100 where your state requires it.
• Filing a New Hire Report for every new employee with the state registry within the required window — $50 per person.
• Payroll calculation: gross pay, federal withholding, Social Security and Medicare, state withholding and employer contributions — $30 per person per run.
• Remitting withheld federal taxes on the IRS deposit schedule — $20 a month or $50 a quarter, depending on your deposit frequency.
• Preparing and filing quarterly Form 941 and annual Form 940 — $75 a quarter.
• Quarterly state payments and filings, including withholding and unemployment contributions (SUTA) — $50 a quarter.
• Preparing the quarterly payroll report for your records and reconciliation with bookkeeping — $100 a quarter.
• Annual preparation and filing of W-2s for every employee plus the W-3 transmittal to the Social Security Administration — $100 a year.

Pricing

The price list splits into two parts: one-time setup actions and ongoing service. That structure means you pay for configuration in the first month, and after that the cost becomes predictable.

Item	Price	Frequency
Employer registration (federal)	$130	One-time
Employer registration (state)	$100	One-time, if applicable
New Hire Report per employee	$50	At each hire
Payroll calculation (federal and state taxes)	$30 per person	Each payroll run
Federal tax deposits	$20/month or $50/quarter	Monthly or quarterly
Federal report preparation (941, 940)	$75	Quarterly
State tax payments	$50	Quarterly
Quarterly payroll report preparation	$100	Quarterly
W-2 filing	$100	Annually
Total ongoing service	$300 per quarter + $100 a year	Continuous

What Drives the Final Price

• Headcount. Each person adds $30 per payroll run and $50 for the New Hire Report at the time of hiring.
• Pay frequency. Weekly payroll means 52 runs a year per person; monthly means 12. That flows straight into the cost.
• State of registration. Some states require no employer registration; others require accounts with two agencies — withholding and unemployment.
• Employees in multiple states. A remote worker in another state usually creates registration and filing obligations there as well.
• IRS deposit schedule. Companies with larger withholding amounts deposit more often, which changes payment frequency.
• Condition of prior records. If past quarters went unfiled, the backlog has to be cleared first, and that’s quoted separately.

Worked Example

Take a typical setup: an S-corp with one owner-employee and one hired worker, monthly pay, in a state that requires employer registration. Here’s year one.

Cost item	Calculation	Amount
Employer registration (federal and state)	$130 + $100	$230
New Hire Reports for two people	$50 × 2	$100
Payroll calculations for the year	$30 × 2 people × 12 months	$720
Ongoing service	$300 × 4 quarters	$1,200
W-2 filing	$100 a year	$100
Total, year one	—	$2,350

From year two the one-time items drop away and the cost falls to roughly $2,020: payroll runs, quarterly service and W-2s. Switching to biweekly pay adds about $700 a year in calculation fees.

Now the point of it. An S-corp owner earning about $120,000 who pays a reasonable $60,000 salary saves roughly $7,700 a year in self-employment tax compared with an LLC without S status. Payroll at about $2,000 a year is the price of making that work: without wages run through payroll, the IRS doesn’t recognize the split between salary and distributions.

With more employees the math scales proportionally: each additional person on monthly pay adds $360 a year in calculations plus $50 for the New Hire Report at onboarding.

What Happens If You DIY or Skip It

Payroll is one of the few areas where the IRS moves fast and hits hard. Taxes withheld from an employee’s wages are trust fund taxes — the employee’s money that the company holds and must remit. Failure to pay them triggers the Trust Fund Recovery Penalty equal to 100% of the unpaid amount, and it can be assessed personally against the owner or whoever was responsible for the payments.

The other penalties are tiered. Late deposits draw 2% for up to 5 days late, 5% for 6 to 15 days, 10% beyond that, and 15% after an IRS demand. Failure to file Form 941 costs 5% of the tax for each month late, up to 25%. Late W-2s are penalized per form, so a batch filed late adds up quickly.

S-corp owners carry a separate risk. If profit is distributed but no salary is paid, the IRS reclassifies the distributions as wages and assesses payroll taxes with penalties and interest. The wage deduction for prior years can’t be fully recovered, and the benefit of S status evaporates.

Running payroll yourself through a cheap online tool looks like a saving as long as everything stays standard. The trouble starts with an employee in another state, a bonus, expense reimbursements, sick pay, or a misclassified contractor. Fixing it after the fact costs more than running it properly, because it means amended 941-X filings and corrected W-2s.

How the Work Is Organized

1. We map your situation: entity type, state, headcount, planned pay frequency, and whether the owner needs a salary.
2. We register the company as an employer federally and with the state, obtaining the required account numbers and access.
3. We onboard employees: collecting W-4s, I-9s and direct deposit details, and filing New Hire Reports within the deadline.
4. We run the first payroll: calculating withholdings and employer contributions, and preparing payment instructions and pay stubs.
5. We maintain the calendar of payments and filings: federal deposits, Forms 941 and 940, and state payments and reports.
6. At year-end we prepare and file W-2s and the W-3, reconciling the totals with your books and the company’s tax return.

Which Option Fits Which Business

Payroll needs vary: some clients need one monthly run for the owner, others need full handling of several employees. Here are the benchmarks.

Client situation	What we handle	Price guide
S-corp, owner only, monthly pay	Registrations, 12 runs a year, quarterly filings, W-2	≈ $1,800–$2,000 in year one
S-corp or LLC, owner plus 1–2 employees	The same plus runs and New Hire Reports per person	≈ $2,300–$3,000 in year one
Employees in two states	Registrations and filings in both states	Quoted individually
Missed quarters and unfiled reports	Reconstructing filings and amended forms	Quoted after a situation review

Common Client Mistakes

1. An S-corp owner taking only distributions and no salary

Consequence: The IRS reclassifies the payments as wages and assesses payroll taxes, penalties and interest.

How to avoid it: Start payroll in your first profitable quarter and document a market-rate salary for your role.

2. Treating an employee as a contractor

Consequence: Back taxes for the whole period, penalties, and possible state claims.

How to avoid it: Check the control factors before hiring; when in doubt, treat the person as an employee.

3. Running payments and filings without a calendar

Consequence: A single missed deposit or Form 941 triggers a penalty immediately.

How to avoid it: Hand the calendar to your provider or set reminders with several days of buffer.

4. Treating a remote out-of-state employee as local

Consequence: Withholding and contribution obligations in their state go unmet.

How to avoid it: Tell us as soon as an employee moves states — registration takes time.