by Burke Brown
This month I wanted to focus on some questions I’m often asked regarding taxes. A new client I was talking with recently made the comment that he thought penalties and fees with the IRS were just part of owning and running a business. There are many things that are ‘just part of doing business,’ but wasting your profit on fees and penalties to the IRS isn’t one of them! I’ll detail out some of the basic payroll taxes that affect businesses and let you know which ones you as a business owner are responsible for and which your employees are responsible for.
There are a few different types of payroll taxes. Your employees are responsible for paying the Federal Income Withholding Tax, and State Income Withholding Tax. These are either a flat rate or are based on tax tables, depending upon the state. I won’t elaborate on either of these as they’re paid for by the employee, and not the business.
As an employer you are responsible for paying your Social Security Tax – sometimes referred to as OASDI or Old-Age, Survivors, and Disability Insurance. Your responsibility of this tax is 6.2%, and the employee matches that with 4.2% of their own. As of Jan 1, 2011 the employee contribution was reduced from 6.2% to the current 4.2%.
As an employer you also pay Medicare Tax of 1.45% and the employee matches that with 1.45% as well. These two taxes are referred to as your FICA tax – this is simply the Social Security and Medicare taxes combined together (FICA stands for Federal Insurance Contributions Act) – so the 6.2% Social Security plus the 1.45% Medicare.
Another important tax paid for by the business owner is the Federal Unemployment Tax or FUTA. As Travis wrote about in the August Newsletter, this went down from .8% to .6% starting in July. This is paid by the employer and is only paid on the first $7,000 of wages.
Similar to the Federal Unemployment, employers are also responsible to pay the State Unemployment Tax or SUTA. This varies by state, and is based on your experience or history depending on the number of claims you have had, and how much you are using it. The state typically assigns a new company rate if you are starting up. If you have a history, your rate will typically be adjusted each year based on your claims. You can significantly reduce costs by keeping this low and minimizing your claims.
No matter the size of your business or the industry you’re in, at Payroll Experts we eliminate this unnecessary waste of money by taking care of your taxes and making sure they’re done right and on time – no more fees and penalties. Feel free to contact us with any questions you may have regarding taxes specific to your company and industry – we’re always available to help in any way we can. At Payroll Experts, we relieve you as the business owner of the need to study and keep abreast of all the new changes and tax laws. So relax, knowing that we’ve got you covered, and keep doing what you do best – running your business.