As the tax season approaches, businesses should start planning their IRS payroll taxes. IRS payroll tax withholding, filing, and remittance can be challenging processes, but as a business owner, these tasks are essential. Most of the time, employers are required to deposit employment taxes and report them on a quarterly basis. Federal, state, and municipal income taxes, as well as the employee’s part of Social Security and Medicare taxes, are all covered under employment taxes that are withheld from employees’ paychecks. Federal and state unemployment taxes are also included, as well as the employers’ portion of FICA. Employers may incur heavy fines if taxes are not correctly withheld and deposited. If you are not sure how to manage payroll taxes or have a related tax problem with the IRS, you should consult our tax attorneys in Dallas, Texas. To help simplify the IRS payroll tax process, here in this blog, we are going to explain the various payroll taxes for employers. Let’s get started.
Federal Income Tax
Employers are generally required to withhold federal income tax from their employee’s wages. To determine how much tax you are obliged to withhold, you can use the employees’ “Form W-4” and “Employees’ Withholding Certificates”. You may also refer to the withholding table mentioned in “Publication 15-T, Federal Income Tax Withholding Methods”.
Social Security and Medicare Taxes
Alongside the Federal Income Tax, employers must also withhold Social Security and Medicare Taxes from their employees’ salaries. In this regard, it’s worth noting that Social security and Medicare taxes follow different rates, while only the social security tax follows a wage base limit. To put it simply, the wage base limit is the maximum wage eligible to the tax for a specific year. Business owners can figure out the amount of withholding for social security and Medicare taxes simply by multiplying each payment by the employee tax rate.
Additional Medicare Tax
In addition to the above-mentioned employment taxes, employers are also responsible for withholding an “Additional Medicare Tax”, amounting to 0.9% on their employees’ wages when it exceeds the limit of $200,000 during a calendar year. Employers must begin the process of withholding Additional Medicare Tax during the pay period in which an employee’s wage payment amount exceeds $200,000 and continue to withhold it during each pay period until the end of the particular calendar year. It’s worth noting that the Additional Medicare Tax is a one-side deduction, which doesn’t require any contribution from the employer’s end.
Federal Unemployment Tax
Employers can report and pay Federal Unemployment Tax (FUTA) separately from Federal Income tax, Medicare taxes, and social security tax. Here, it’s crucial to note that employees aren’t required to pay this tax or have it withheld from their salary. It is the employers who pay FUTA from their own funds.
Understanding Deposit Schedule
Before the beginning of each calendar year, you must determine which deposit schedule to follow—monthly or semi-weekly. There are two available deposit schedules. To find out which one applies to you, review Publication 15 for Forms 941, 944, and 945, or for Form 943, refer to Publication 51.
For FUTA Tax (Form 940) deposits, they are required for the quarter when the tax due exceeds $500. Make sure to deposit the tax by the end of the month following the quarter’s end.
Failure to make a timely deposit can result in a failure-to-deposit penalty of up to 15 percent. Since employers often miss tax filing dates, seeking the assistance of a Dallas IRS payroll tax attorney is advisable to ensure timely compliance.
How to Manage Independent Contractors or Self-Employed Individuals?
Dealing with independent contractors or self-employed individuals requires careful consideration. Although they are not employees, it is essential for businesses to assess the workers’ status accurately to ensure proper classification as an independent contractor. When engaging with such workers, businesses are not liable for any employment taxes on the payments made to them. Instead, these individuals are responsible for paying self-employment (SE) tax on their net earnings from self-employment, covering the employee and employer share of FICA.
If a self-employed person also receives wages from a regular job, the wages are coordinated with the SE tax to apply the appropriate wage-base ceiling. Furthermore, if the total payments made to an independent contractor during the year amount to $600 or more, the business is obligated to file an annual information return known as Form 1099-NEC. This form is used to report the payments to both the worker and the IRS.
Employment Tax Recordkeeping: Ensuring Compliance and Peace of Mind
Employment tax recordkeeping is the process of maintaining accurate and organized records related to payroll and employment taxes. For employers, this includes the responsibility of recording, retaining, and producing relevant documents to comply with federal and state tax regulations. Proper record keeping is essential for ensuring accurate reporting, timely tax payments, and compliance with various employment tax laws.
Here are some key aspects of employment tax recordkeeping:
Employee Information: Employers must keep comprehensive records for each employee, including their full name, Social Security number, address, and employment start date. Additionally, records should indicate whether employees are full-time, part-time, or temporary.
Wage Records: Detailed wage records should be maintained for each employee, showing their regular wages, overtime pay, commissions, bonuses, tips, and any other forms of compensation.
Time and Attendance Records: Accurate records of employee hours worked, including the start and end times of each workday, breaks, and any paid time off, must be kept.
Payroll Records: Employers should maintain payroll records that document each payment made to employees, along with any deductions, taxes withheld, and benefits provided.
Employment Tax Returns: Copies of filed employment tax returns, such as Forms 941 (Employer’s Quarterly Federal Tax Return) and Form 940 (Employer’s Annual Federal Unemployment Tax Return), should be kept on record.
Independent Contractor Records: For independent contractors, employers should retain records of the contract agreement, payments made, and any required Form 1099-MISC reporting.
Employment Tax Deposits: Records of tax deposits made, including dates and amounts, are crucial to ensure compliance with deposit requirements.
Records Retention Period: Employers must keep employment tax records for a specified period, which is generally at least four years from the later of the tax return’s due date or the date the tax was paid.
Accurate and well-organized employment tax recordkeeping is not only necessary for complying with tax laws but also crucial during tax audits or examinations by tax authorities. Failing to maintain proper records can lead to penalties, interest, and potential legal issues. Employers should establish a systematic recordkeeping process and ensure that all required documents are properly stored and easily accessible as needed. Consulting with a tax attorney in Dallas, Texas can help simplify the recordkeeping process and ensure compliance with all employment tax obligations.
The best way to avoid IRS tax problems is to act sooner than later. When it comes to filing IRS payroll tax in Dallas, it is always advisable to work with an experienced Dallas payroll tax attorney. From accurately calculating your tax to advising the right course of action and filing your employment taxes, a seasoned tax attorney in Dallas, Texas, can help you navigate the legalities. When looking to consult a tax attorney in Dallas, Texas, look no further than the Law Offices of Nick Nemeth. We are a leading name when it comes to providing comprehensive tax solutions for all types of IRS tax problems. To discuss your requirements, call (972) 426-2905. Alternatively, you can fill out our contact form, and our representatives will reach out to you at the earliest.