Business Payroll Taxes
If you operate a business and have any employees, by IRS you are required to withhold payroll taxes from their paychecks. Payroll taxes that you will be withholding are at both the state and federal levels. The rate you use will be determined by your applicable state tax reporting laws for state income taxes withheld. IRS determines these rates for federal tax income.
There are different kinds of payroll taxes that you are required to withhold and pay to the applicable governments, along with their applicable tax forms:
FICA – Federal Insurance Contributions Act. This category is the combination of both the employer’s share and the employee’s withheld share of social security and Medicare taxes.
Federal – Federal income tax will be withheld from your employee’s paycheck based upon their claimed exemptions (IRS Form W-4) and any additional withholding amounts (if any). The federal withholding amount is in addition to the FICA amount mentioned above.
Payroll tax deposit. Each month (or sooner depending on your payroll situation) you will make a payroll tax deposit. This deposit figure will be a consist of the FICA figure mentioned above. Information on calculating the amount will be found in the IRS Circular E. You will use IRS Form 8109-B (Federal Tax Deposit Coupon) for this purpose.
Quarterly. Form 941. You will report these payroll taxes (FICA and federal withholding) on a quarterly basis by filing IRS Form 941. Information contained on the Form 941 include total wages, wages per month, employees per month, payroll tax deposits made, and any tax due amount. If you calculated your payroll tax deposits correctly, there will be little or no taxes due to the IRS when you file this form.
941 – Payment Voucher. This is the IRS Form you use to pay your quarterly tax amount due (if any).
State – If the state in which you operate a business in has a state income tax, you need to withhold this percentage from your employee’s paycheck.
Other payroll related taxes you are required to pay (but not withhold from your employees checks) include:
FUTA – Federal Unemployment tax. This payroll related tax is paid on an annual basis by using IRS Form 940 (Annual Federal Unemployment Tax Return). This tax is paid in full, one lump sum.
Alternative: There is a shorter version of the IRS Form 940 available to you if certain conditions/situations are met. You can use IRS Form 940-EZ if any of these conditions are met:
- All your FUTA taxes paid were the same amount
- Your business only pays FUTA to one state
- Your state unemployment taxes were paid in full by January 31, 2007
- You did not hire a household employee to work in your private home (domestic help) for the entire tax year
W-4. Employee’s Withholding Allowance Certificate. This is one of the required tax forms you will have your employees fill out. It can be changed at any time by the employee. Your employee will use this form to claim their withholding allowances. In turn, you will use the withholding allowance to calculate your payroll withholding figures along with employee’s paychecks.
I-9. Employment Eligibility Verification. This form is used to verify, or proof, the legality of your employee to work in the United State.
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