While the question of whether or not payroll taxes are fair may seem complicated, the facts are that the employees and employers both pay a share of the payroll tax. In fact, payroll taxes are so high that the liability for self-employed individuals can double. However, the new COVID-19 relief is expected to bring the issue back to the forefront of the conversation. Payroll taxes are a growing part of our economic system, and the cuts that President Trump announced will help many businesses and individuals avoid paying them are a welcome relief.
As an employer, you must calculate payroll taxes for each employee. The amount of payroll taxes to withhold is dependent on the number of pay periods, the employee’s filing status, and any allowances claimed by the employee. To calculate the payroll tax due, each employee should complete and sign Form W-4. The worksheet should include the total taxable wages for the year. If an employee claims more personal allowances, the amount will be underpaid. Underpayment penalties may result.
Keeping track of payroll taxes is essential if you want to stay in business and grow. Managing these payments can be a complicated process, but it’s an important one that will pay off in the long run. Employers are required to deposit payroll taxes on behalf of their employees, and sometimes even withhold additional amounts. Regardless of the method of payment, it is vital to have an accurate accounting for these taxes. The amount of payroll taxes you have to deposit each quarter is different depending on your location.
Besides the federal government’s income tax, you also have to worry about your own income taxes. The IRS requires employers to pay payroll taxes on wages and benefits they pay. However, there are many exceptions to this rule, and employers are often more than happy to pay them if they have a legal obligation. So, it’s imperative to understand all of your options before submitting your tax return. The next post in this series will examine the effectiveness of payroll taxes and how they can improve the lives of Americans.
While both employers and employees are responsible for withholding taxes, the employees are the ones who determine how much they’d like to withhold. Using a form called Form W-4, employees can calculate the amount of money they owe. In addition to the federal income tax, most states also collect income tax, as well as state and local taxes. If you have employees, it’s a good idea to have a payroll provider check your information.
First-time employers should obtain an employer identification number (EIN) number from the IRS. Additionally, they may need state and local tax numbers as well. These numbers are essential for any correspondence, deposits, returns, or other forms. It’s also vital to file quarterly federal tax returns and deposit payments. The amount you’ll have to pay depends on the size of your business and how often you process payroll. When to file returns depends on how often you process payroll, but it’s always better to hire an experienced payroll tax professional if you’re too busy.