All businesses and nonprofit organizations are required to withhold taxes from their workers’ wages, and pay local, state and federal taxes, as dictated by law. In addition to income taxes, FICA is required. In some states, disability insurance withholding may also be required. Remember, total taxable wages must be used for the calculation. This includes salary, gifts, and bonuses, but not reimbursements for expenses. It is essential that proper calculation and withholding be completed; errors can result in stiff penalties and fines.
If you are a small business owner, depending on your business’ legal structure, you may be required to withhold the taxes mentioned above from your paycheck as well; the owner of the company is typically not exempt. It is important to contact your business accountant, as well as your personal account to discuss any changes in corporate structure, the addition of employees and other matters regarding your business to ensure all taxes are being properly collected and paid.
For companies with multiple taxable workers, it is often best to rely on a professional payroll services company or accountant to calculate and withhold the necessary taxes. This is a time-consuming endeavor and is frankly best handled by an individual with the knowledge and expertise. In matters of taxes, you can never be too careful.
Many small business owners confuse the roles of employees vs. independent contractors. While it is a relatively common small business practice to hire individuals as an independent contractor to save on taxes and other expenses, it can cause legal issues. The IRS has very strict rules that govern whether workers are employees or independent contractors. Just because you call someone one or the other, doesn’t necessarily make it so.
For example, an independent contractor cannot be treated as a typical employee. This includes whether the business has the right to control what the worker does and how. Additionally, if the employee is provided insurance, vacation time and if expenses are reimbursed, they may not qualify as an independent contractor. It is vital that your organization know the IRS definitions of independent contractors. There are significant legal consequences if workers are misclassified as an independent contractor, whether intentional or not.
Unlike income and FICA, unemployment taxes are not paid by the employee or withheld from their paychecks; they are the sole responsibility of the employer. Credits may be available depending on your firm’s structure, income, and other factors. Discuss this matter with your company’s accountant to ensure that proper payments are being made in a timely manner.
Calculating, collecting, reporting, and paying payroll taxes are complicated and it is easy to make errors. It is essential that payments be made on time, as late fees and penalties can significantly raise the overall tax burden. It is generally recommended that businesses use the Electronic Federal Tax Payment System (EFTPS).
Payroll taxes are a key part of doing business and it is essential that your company follow all of the laws and regulations exactly. To get the professional help, you need to ensure your organization is adhering to the letter of the law, contact Barry Bandler Accounting & Tax Services today.