If you thought that filing taxes as a “one man band” was challenging – wait until you hire employees. The government has strict regulations in place for employers that must be followed in order to avoid hefty penalties. Not only will you be responsible for distributing payroll on a periodic basis to your staff, but you’ll also be responsible for paying related taxes for each employee you have on the books. These taxes include federal income, social security, Medicare, and potentially state and city as well.
Getting Help with Payroll and Employment Taxes
Dealing with tax payments can be complex – especially if you’re new to business. Many business owners realize just how much responsibilities they have and opt to work with financial professionals and/or utilize applications to keep things organized. For example, ADP employment tax & compliance services provide a one-stop solution for small business owners in need of assistance with their payroll and taxes.
By employing the services of companies like ADP, business owners are able to gain control and minimize risks. With options to outsource your payroll and tax needs to certified professionals and/or incorporating applications for “do-it-yourself” payroll and tax filing solutions, you’re sure to remain in compliance and avoid issues with the local and federal government.
Taxes for Employers
Not convinced that you need to outsource your payroll and employment tax needs? Here is a closer look at the taxes you’re responsible for:
- In General
After acquiring a federal employee identification number (EIN), you’ll then have to file payroll taxes through the government. As an employer you will be mandated to withhold each employee’s full federal income tax, and half of the Social Security and Medicare tax from each paycheck. Employers are also responsible for paying for the remaining half of the social security and Medicare tax.
- Unemployment Taxes
In addition to the taxes that were listed above, as an employer you will be responsible for paying unemployment taxes for each one of your employees. It is referred to as the state and federal unemployment tax. The federal unemployment tax is approximately 6% of the first $7,000 paid in wages throughout the year. State unemployment tax will greatly depend upon the state you’re doing business in.
- Federal Income Taxes
The amount of federal tax income you’ll have to account for each pay period will depend upon the amount of income your employees make. This is why it is mandatory for businesses to provide incoming staff with a W-4 form to complete. This helps to figure out the percentage of federal, stage, and city taxes.
- Social Security Taxes
Social security taxes account for about half of the federal insurance contributions act (FICA). A total of 6.2% of each employee’s paycheck is to be withheld for social security taxes. On top of that responsibilities, employers are also required to match that percentage, paying the other half.
- Medicare Taxes
Medicare makes up the other half of FICA. Again, employers will need to withhold a percentage of their employee’s income while also matching the percentage. Medicare tax is approximately 1.45%.
- State & City Income Taxes
Depending on where your business is, you may be required to pay state tax along with your employees. This percentage will vary greatly and can be calculated using a tax tool. While most cities and counties do not have an income tax, there are cities such as New York that do. You’ll be responsible for withholding a portion of your employee’s check along with paying a portion of these taxes.
Realizing all the taxes you’re responsible for paying and the laws you’re required to have a grasp of can make it easier for you to enlist help. Sometimes, the best way to get more things done in the course of a day and avoid risks to your business is to outsource. Accounting professionals and financial agencies such as those described above are highly skilled and have the resources to help your business succeed.