Nothing in federal law requires a payroll company. An owner with a spreadsheet, IRS Publication 15 and a bank account can run payroll on their own. The question is not whether it is allowed but what it costs you in hours and in risk, compared with a few hundred dollars a year for software that files for you. This page reads the duties from Publication 15 (2026) and the prices from the vendors' pricing pages, both on October 27, 2026. We did not run payroll in either product.
For whom: an owner with one to five employees deciding how to pay them. Not for: an S corporation owner paying only themselves (see S corp owner payroll), or a company with staff in several states.
What doing it yourself actually involves
| When | Federal duty (Publication 15) |
|---|---|
| Each new hire | Form W-4, Form I-9, report to your state's new hire registry |
| Each payday | Withhold federal income tax from the IRS tables, 6.2% social security (on wages up to $184,500 in 2026) and 1.45% Medicare from the employee, and owe the matching employer share; above $200,000 of an employee's wages, withhold an extra 0.9% Additional Medicare Tax, which has no employer match |
| Monthly (new employers start here) | Deposit those taxes by the 15th of the following month through EFTPS, a free Treasury service; you generally stay a monthly depositor while your lookback-period taxes are $50,000 or less, but if you accumulate $100,000 or more of taxes within a deposit period, deposit by the next business day and become a semiweekly depositor |
| Quarterly | File Form 941, unless the IRS has notified you to file the annual Form 944 instead |
| Yearly | File Form 940 (FUTA), give employees Form W-2 and file it with the SSA, reconcile 941s with the W-2s |
Then add your state: income tax withholding where the state has one, state unemployment, and any local taxes. Those accounts and returns are yours to open and file too.
Can a spreadsheet run it?
A spreadsheet can compute gross-to-net pay; it cannot deposit, file or keep itself current. Two dated facts decide how far it goes:
| Fact (read on October 28, 2026) | What it means for a homemade payroll sheet |
|---|---|
| The IRS's own Excel tool, the Income Tax Withholding Assistant for Employers released in December 2019, now carries the label "obsolete" and sits in the IRS news archive | That Excel assistant offers no 2026 version; a homemade sheet means building and maintaining the withholding formulas yourself |
| Publication 15-T (2026) says its withholding tables were updated for P.L. 119-21, the One Big Beautiful Bill Act; it tells employers with an automated payroll system to use Worksheet 1A and the Percentage Method tables, and gives wage bracket tables for manual payroll | A sheet built from last year's tables may withhold incorrectly because the tables changed; rebuild it from each new Publication 15-T |
What no spreadsheet does: the EFTPS deposits, Forms 941 and 940, W-2s and state returns in the table above. Our position: a spreadsheet is a calculator for the one-employee case, not a payroll system. If you use one, take the 2026 Worksheet 1A and Percentage Method tables from Publication 15-T and redo the sheet every January.
What a mistake costs
Publication 15's deposit penalties are percentages of the late amount:
| Deposit made | Penalty |
|---|---|
| 1 to 5 days late | 2% |
| 6 to 15 days late | 5% |
| 16 or more days late (before 10 days after the first IRS notice) | 10% |
| Still unpaid more than 10 days after the first IRS notice, or after you receive a notice and demand for immediate payment, whichever is earlier | 15% |
A $2,000 deposit made ten days late costs $100 at the 5% rate, before interest. Withheld taxes that are never paid over can expose people who are responsible for paying them and willfully fail to do so to the trust fund recovery penalty, 100% of the unpaid trust fund tax.
What software costs instead
| Route | One employee, one year | Five employees, one year | Who files |
|---|---|---|---|
| By hand | No software fee | No software fee | You |
| Square Payroll, full-service ($35 a month plus $6 per person paid) | $492 | $780 | Square files federal payroll taxes and state income and unemployment taxes where applicable |
| OnPay ($49 a month plus $6 per worker) | $660 | $948 | OnPay states that federal, state and local filings are included |
Prices are the published list prices before promotions or taxes.
Our pick
Full-service software, and Square Payroll for the lowest list price we recorded. For one to five employees, it takes the deposit calendar and the routine filings off your desk, though the tax liability stays yours. OnPay is the step up if you have local payroll taxes, because its pricing page says local filings are included.
- Do it yourself if you have one employee in one state, you are comfortable with tables and deadlines, and you will set reminders for every deposit and return. Start with Publication 15 and EFTPS.
- Hire a local payroll service or accountant (not reviewed here) if nobody in the business wants to own the calendar and you want a person to call.
Whatever you choose, the IRS states that the employer remains ultimately responsible for deposits and payments, even with a provider; see what your provider files and what stays yours. For every price at 1, 5 and 20 employees, see payroll software prices.
Traceable evidence
Sources for this decision
- regulatorPublication 15 (2026), (Circular E), Employer's Tax GuideInternal Revenue Service · checked Oct 27, 2026 · supports: IRS Publication 15 (2026): 2026 social security rate of 6.2 percent each for employer and employee on wages up to 184,500 dollars, Medicare 1.45 percent each with no wage base, 0.9 percent Additional Medicare Tax withheld on wages over 200,000 dollars with no employer share, FUTA 6.0 percent on the first 7,000 dollars with up to a 5.4 percent credit (0.6 percent net), monthly depositor status for 50,000 dollars or less in the lookback period and for new employers' first calendar year, deposit by the 15th of the following month, the 100,000 dollar next-day rule for taxes accumulated within a deposit period, which also makes a monthly depositor semiweekly, late-deposit penalties of 2, 5, 10 and 15 percent (15 percent for amounts unpaid more than 10 days after the first notice or after notice and demand for immediate payment, whichever is earlier), the 100 percent trust fund recovery penalty on responsible persons who willfully fail to collect or pay over trust fund taxes, quarterly Form 941 and annual 940, employers notified by the IRS filing the annual Form 944 instead of Forms 941, W-2 duties, applying for an EIN online or with Form SS-4, Form I-9 and E-Verify for new hires, the 2026 Form W-4, reporting new employees (including rehires after 60 consecutive days of separation) to a state new hire registry where many states accept a copy of Form W-4, references to Publication 15-T withholding tables, EFTPS and SSA W-2 e-filing described as free, and the rule that an employer remains responsible when a third-party payer fails; it does not cover state taxes.Open source ↗
- officialEFTPS, Electronic Federal Tax Payment SystemU.S. Department of the Treasury · checked Oct 27, 2026 · supports: Treasury's EFTPS page stating that the Electronic Federal Tax Payment System is provided free by the U.S. Department of the Treasury and can be used to pay any tax due to the IRS; it does not compute tax or file returns.Open source ↗
- regulatorOutsourcing payroll dutiesInternal Revenue Service · checked Oct 27, 2026 · supports: IRS page (last reviewed March 4, 2026) stating that the employer is ultimately responsible for the deposit and payment of federal tax liabilities even when a payroll service provider is used, recommending that the employer keep its own address of record and enroll in EFTPS to verify payments, and to contact the IRS promptly about notices; it does not rate any provider.Open source ↗
- regulatorPublication 15-T (2026), Federal Income Tax Withholding MethodsInternal Revenue Service · checked Oct 28, 2026 · supports: IRS Publication 15-T (2026) as read on October 28, 2026: the 2026 federal income tax withholding tables were updated for changes made by P.L. 119-21, commonly known as the One Big Beautiful Bill Act; an employer with an automated payroll system uses Worksheet 1A and the Percentage Method tables in section 1, which work for Forms W-4 for all years; sections 2 and 3 give wage bracket tables for manual payroll systems with Forms W-4 from 2020 or later and from 2019 or earlier, and section 4 percentage method tables for manual payroll. It does not cover deposits, returns or state withholding.Open source ↗
- regulatorIRS news release IR-2019-209: Income Tax Withholding Assistant for Employers (obsolete)Internal Revenue Service · checked Oct 28, 2026 · supports: IRS news release IR-2019-209 of December 17, 2019, as read on October 28, 2026: the Income Tax Withholding Assistant for Employers, a Microsoft Excel spreadsheet designed to help employers, especially small businesses, determine federal income tax withholding, is now labeled obsolete, and the page is marked as an archival or historical document that may not reflect current law. It does not provide a 2026 version.Open source ↗
- vendorSquare Payroll official product siteSquare Payroll · checked Aug 5, 2026 · supports: Vendor-published product scope used to verify capabilities relevant to this buyer context: Small hourly businesses evaluating payroll beside Square point-of-sale and team workflows.. It does not prove the guide's fit verdict, configured performance, current pricing or compliance.Open source ↗
- vendorOnPay official product siteOnPay · checked Aug 5, 2026 · supports: Vendor-published product scope used to verify capabilities relevant to this buyer context: Small employers and accountant-managed businesses comparing a focused payroll and HR workflow.. It does not prove the guide's fit verdict, configured performance, current pricing or compliance.Open source ↗
- vendorSquare Payroll pricing pageSquare Payroll · checked Oct 27, 2026 · supports: Square Payroll's own pricing page as read on 2026-10-27, supporting the entry list price of its Full-service payroll plan ($35/month + $6 per person paid) and the page details recorded with it (Contractor-only payroll: $6 per person paid, no base fee), and whether a free plan exists. It does not prove the total cost for a given buyer, later price changes, promotions, negotiated discounts or taxes.Open source ↗
- vendorOnPay pricing pageOnPay · checked Oct 27, 2026 · supports: OnPay's own pricing page as read on 2026-10-27, supporting the entry list price of its Payroll Essentials plan ($49/month + $6 per worker), and whether a free plan exists. It does not prove the total cost for a given buyer, later price changes, promotions, negotiated discounts or taxes.Open source ↗
- vendorSquare Payroll pricing page, plan featuresSquare · checked Oct 27, 2026 · supports: Square Payroll's pricing page as read on October 27, 2026: full-service payroll at a monthly fee plus a per-person fee, contractor-only payroll per person paid with no base fee and without automated tax filings, Square's statement that it calculates, withholds and files all federal payroll taxes and files state income and unemployment taxes where applicable in each jurisdiction, digital W-2 and 1099 delivery, and an annual fee of $3 per employee or contractor for employers who opt in to mailed paper W-2s or 1099s; it does not name local taxes or Forms 941 and 940.Open source ↗
- vendorOnPay pricing page, plan featuresOnPay · checked Oct 27, 2026 · supports: OnPay's pricing page as read on October 27, 2026: Payroll Essentials at a base fee plus a per-worker fee, a one-month-free offer link without stated terms, and statements that W-2s, 1099s and year-end filings and federal, state and local tax filings are included; it does not state a filing guarantee.Open source ↗