How Can Small Businesses Make Sure They Are Meeting Their Payroll Tax Obligations?

 Posted on August 29, 2022 in Taxation Law

For small businesses, employment taxes and payroll taxes can be a significant issue. It is important for business owners to make sure that they are meeting their tax obligations in order to avoid any penalties or interest charges. By understanding the different types of payroll and employment taxes that may apply to them, small business owners can ensure that they are withholding taxes correctly from employees' wages and paying the appropriate taxes at the federal, state, and local levels.

Understanding Different Types of Employment Taxes

When addressing issues related to payroll taxes, employers will first need to make sure workers are classified correctly. When workers are classified as employees, an employer will need to withhold payroll taxes from their wages. However, taxes will not need to be withheld from payments made to independent contractors. To determine how a worker should be classified, an employer may need to look at whether they have direct control over the person's work, whether the work performed by a person is outside the company's usual course of business, and whether the worker has an independently established business or trade.

After classifying workers and determining what wages are taxable, an employer may need to withhold and/or pay the following types of taxes:

• Federal income tax - Based on the W-4 forms submitted by employees, an employer will need to withhold a certain amount of federal income tax from employee wages. The percentage of wages that are withheld is based on factors such as an employee's filing status, the exemptions claimed, and the applicable payroll period (daily, weekly, bi-weekly, semi-monthly, or monthly).

• Social Security and Medicare taxes - Also known as FICA taxes, these amounts are calculated using a flat percentage. Employers are required to withhold these taxes from employee wages and match the amount withheld. Additional Medicare taxes may also need to be withheld for employees who are paid more than $200,000 in a calendar year.

• Federal Unemployment Tax (FUTA) - These taxes are paid by the employer and are not withheld from employee wages. They are calculated based on a flat percentage of each employee's wages, although credits may be available for state unemployment taxes paid by an employer.

• State taxes - Employers in California are required to pay four types of payroll taxes. Personal Income Tax (PIT) and State Disability Insurance (SDI) must be withheld from employees' wages. PIT is calculated based on the information in an employee's W-4 form, and SDI is a flat percentage of a certain amount of the wages paid. Employers are also required to pay Unemployment Insurance Tax (UI) and Employment Training Tax (ETT), and these taxes are not withheld from employees' pay.

Contact Our San Jose, CA Payroll Tax Attorney

If you have questions about employment taxes or payroll taxes, our experienced San Jose payroll tax lawyer can help. At John D. Teter Law Offices, we understand the complex laws and regulations related to employment taxes, and we can help ensure that your business is in compliance with its requirements regarding state and federal taxes. Contact us today at 408-866-1810 to schedule a consultation.

Sources:

https://www.investopedia.com/articles/taxes/08/business-payroll-tax.asp

https://www.irs.gov/businesses/small-businesses-self-employed/understanding-employment-taxes

https://edd.ca.gov/en/Payroll_Taxes/What_Are_State_Payroll_Taxes