Information About Payroll Taxes for New Business Owners
Failure to understand your payroll tax responsibilities can be costly. Payroll taxes are one tax that all owners of a business, whether incorporated, an LLC or not are personally responsible for.
We provide all levels of payroll services and will advise you as to what forms must be filed for your particular business situation:
- Receive expert advice from a licensed CPA
- Quarterly and year-end federal and state tax filings including W-2s and 1099s
- IRS and state payroll correspondence
- Weekly, bi-weekly or monthly payroll checks and tax payments
- Workers compensation, disability, health, 401(k) and other employee benefit options
- Setup and maintenance of all electronic filing requirements
Payroll taxes are assessed by the federal government, all fifty states, the District of Columbia, and numerous cities. These taxes are imposed on employers and employees and on various compensation bases and are collected and paid to the taxing jurisdiction by the employers. Most jurisdictions imposing payroll taxes now require mandatory electronic payment and electronic reporting of all quarterly and annually reports. Federal Form 941 must be filed quarterly to report the federal taxes and social security withheld from employee checks. An annual Federal form 940 is used to report federal unemployment taxes. States have their own forms. Each state all has mandatory insurance requirements for employers that include workers compensation, disability and health insurance.
Employee Withholding Tax Responsibilities
Employers are required to withhold taxes from employees.The social security wage base for determining the maximum amount of income subject to social security taxes withheld will be $110,100 for the year 2012. There is a currently a reduction in the Social Security tax rate withheld from employees at 4.2% for employees and 10.4% for self-employed persons. The Social Security tax rate will revert back to its normal rate of 6.2% for employees or 12.4% for self-employed persons when this temporary law expires in 2012.
Employer Tax Responsibilities
Employers must all pay payroll taxes over and above those withheld from their employees. An employer must pay 6.2% social security tax on all gross wages paid to their employees up to the social security wage base. There is also a Medicare tax of 1.45% on all wages, no matter how much that employee makes. Employers must all pay Federal unemployment tax. There are state unemployment taxes, local taxes. In addition employers are required to pay Workers Compensation insurance, disability and in some cases provide their employees with Health Insurance.
Documentation All New Employees Must Provide
Employees must complete federal form W4 .There is also a state equivalent to form W4 in many states. Form I- 9 is required by the Department of Homeland Security and . U.S. Citizenship and Immigration Services to insure that an individual is eligible for employment.
Payroll-Related Penalties Imposed
Failure to timely and properly pay federal payroll taxes results in an automatic penalty of 2% to 10%. Similar state and local penalties apply. Failure to properly file monthly or quarterly returns may result in additional penalties. Failure to file Forms W-2 results in an automatic penalty of up to $50 per form not timely filed. State and local penalties vary by jurisdiction. A particularly severe penalty applies where federal income tax withholding and Social Security taxes are not paid to the IRS. The penalty of up to 100% of the amount not paid can be assessed against the employer as well as any person.
Rosedale & Drapala, CPAs will work with you to minimize your exposure to imposition of any penalties.
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Whether you have a business or are thinking about starting a business, let Rosedale & Drapala handle all of your, tax and accounting needs. We have been working with local businesses just like you for over 25 years.
We can help you with new business setups, bookkeeping services, QuickBooks, S Corporation, partnership and LLC tax preparation services. Tax compliance services including payroll and sales taxes.
Rosedale & Drapala, CPAs is a member firm in the Private Practice Division of the American Institute of Certified Public Accountants (AICPA).