2017-03-30 15:52:22Legal & TaxesEnglishPayroll taxes are more complex than most new business owners realize. Here are a few things to keep in mind as you hire your first...https://quickbooks.intuit.com/r/us_qrc/uploads/2017/04/A-Primer-on-Payroll-Taxes-featured.jpghttps://quickbooks.intuit.com/r/legal-taxes/primer-payroll-taxes/?gA Primer on Payroll Taxes | QuickBooks

Any type of business that hires employees has to manage payroll taxes. Consider Joe, the executive assistant at Silverscreen. Joe fills out an IRS W-4 form to determine his federal income tax withholdings on his $40,000 annual income. Silverscreen follows these steps to process Joe’s payroll taxes:

  • Based on his W-4 withholding documents, Silverscreen withholds 25% of Joe’s gross pay for federal taxes and 5% for state taxes.
  • Silverscreen submits the tax amounts withheld to the IRS and to Joe’s state department of revenue.
  • At year-end, Silverscreen issues Joe a W-2 form, which includes the total amounts withheld for taxes.

Joe includes the W-2 form with this personal tax return. The W-2 lists gross wages and the federal and state tax withholdings.

Managing payroll taxes is time consuming. Consider hiring an outside payroll company to calculate employee tax withholdings. You can give the payroll company access to your company bank account so that they can transmit the net pay to each worker’s bank account. These firms can also complete all payroll tax forms and transmit the forms and tax payments to the IRS and to your state revenue office. The cost of hiring a payroll company may be a huge time saver for your business.

FICA and Medicare Taxes

Employers withhold the worker’s share of FICA and Medicare taxes from gross pay, and also pay a company share of the taxes. Sole proprietors, on the other hand, must pay FICA and Medicare taxes using Schedule SE (self-employment tax) on their personal tax returns. Currently, sole proprietors pay a 15.3% tax rate for FICA and Medicare taxes, with one-half of those taxes posted as a business expense on Schedule C. The business deduction allows the sole proprietor to recover the “business paid portion” of the taxes as a company expense.

Chapter 7.
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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.