You're a business owner, not a tax expert. As your business grows and you begin take on more responsibility, increase your capabilities, and hire new employees, you will undoubtedly run into questions and concerns regarding the taxes your business owes and what is expected of you as an employer by both federal and state governments. Geddes & Company, P.C. can help round out your business' tax knowledge by offering affordable expertise. Let us manage your payroll and payroll taxes. Don't spend another month wondering if you or your employees are paying the correct amount of their wages to the government.
Most people who have ever received a pay stub have probably seen the various listed tax deductions in passing and didn't pay them much attention. The federal and state governments deduct a significant amount from your employees' wages every month, however most people are unaware of what this money is taken out for, and what determines the amount their check is reduced to.
There are two basic types of payroll taxes that you will encounter on your employees' pay stubs. The first are called "withholdings". Withholdings, otherwise referred to as "pay-as-you-go taxes" include income taxes, social security payments, and Medicare/Medicaid payments.
The amount of income tax withheld per paycheck is determined by a form the employee fills out, usually shortly after being hired, called an IRS W-4 Form. Based on the information placed on this form, the government estimates how much income tax the employee will owe at the end of the year, then deducts a portion of this lump sum over the course of the year as an advanced payment. Some states even require the payment of their own, separate income taxes. If an employee has overpaid on their income taxes throughout the year, they may receive a refund after filing their annual taxes.
In order to fund the social safety net, workers must face an additional withholding for both the social security, and Medicare/Medicaid programs. Currently, these payments are 4.2% of a worker's annual salary. Only the first $110,100 earned by an employee is subject to this 4.2% taxation rate. All earned income over this amount is exempt.
The second type of payroll taxes are those the employer are required to pay based on employee wages.
Social Security and Medicare/Medicaid Payments
Employers are required use a portion of profits to pay into both the Medicare/Medicaid and Social Security systems. This amount is based on each employees salary. Per employee, the employer must use company funds to pay 6.2% of their annual salary into the social safety net. These payments are often built into the overhead of a business.
Employers are also required to pay both state and federal unemployment taxes per each employee. This tax not only funds unemployment programs as part of the social safety net, but also includes an administrative fee for administering unemployment taxation and programs.
Depending on your company's structure and the employee benefits you offer, your company pay stubs may also contain a variety of different deductions. These deductions can include payments into a company pension plan, health insurance coverage, or personal employee retirement programs, such as a 401k.
The penalties for unpaid payroll taxes can be harsh. If your business is failing to assess payroll taxes properly, you could face scrutiny and harsh fines from both the federal and state government. In order to ensure that you stay on the right side of the law and avoid costly penalties, and time consuming inquiries, it is vital that you contact a certified payroll tax professional to assess your company's situation.
If you have any questions or concerns about how much payroll tax your employees or your business owes, don't waste your precious time trying to answer them yourself and risk using out of date or incorrect information. The payroll tax professionals at Geddes & Company, P.C. can assure that your business pays what it owes and avoids IRS intrusion. Reach out to us today to hear how we can help manage your payroll and your payroll taxes.