When starting or expanding a business, it is important to know how to deal with employment taxes. While they seem to be automatic when you are an employee, employment taxes are calculated and withheld by the businesses and then paid to the IRS. Here is more information on employment taxes for your business to help your business tax preparation go smoothly.
What are employment taxes?
Employment taxes are a variety of federal, state, and local taxes that must be withheld by business owners from the paychecks of their employees.
What types of employment taxes are businesses required to pay?
Employment taxes include the following:
- Federal and State Income Taxes The amounts of these taxes to be withheld from an employee’s paycheck are predetermined percentages of the employee’s wages calculated from information on the employee’s Form W-4.
- Social Security and Medicare Taxes These taxes pay for benefits provided by the Federal Insurance Contributions Act, which requires that an employer withhold a certain percentage of an employee’s wages and then match the amount withheld. The Social Security Tax pays for benefits for retirees, survivors, and the disabled while the Medicare Tax pays for medical benefits specified by the FICA legislation. These tax amounts are also determined by the information on the employee’s Form W-4.
- Federal Unemployment Tax This tax, which is the sole responsibility of the employer or business owner, is determined using IRS Form 940. It covers unemployment compensation payments to workers who have lost their jobs.
What are the consequences of not paying employment taxes on time?
- When employment taxes are not paid on time, the IRS will often impose harsh penalties due to the fact that a portion of these funds actually belong to the employee. The funds are simply being handled by the employer until the required tax amounts are paid.
- The Trust Fund Recovery Penalty, which is equal to 100% of the tax balance owed, is the harshest penalty imposed when a business fails to meet its employment tax deadlines. This penalty can assign blame to anyone who was in any way responsible for the tax debt and does not take into account the reason for the delinquency.
Due to the complexity of tax law, especially as it applies to small businesses, the best approach to handling any business tax issue is often to enlist the help of a qualified business tax services firm. For more information about our full range of business tax and business accounting services, visit www.businesstaxpreparation.com. Contact us by phone at (866) 676-9417 or by email at email@example.com to receive a free, no obligation consultation.