Payroll Taxes
As an entrepreneur, you withhold taxes from your employee's paychecks each pay period – federal and/or state income taxes (determined by the employee's claimed exemptions) and FICA contributions for Social Security and Medicare (a percentage of the employee's gross earnings, fully or partially matched by you). The money you withhold is deposited to a bank accredited to accept federal taxes with a federal deposit form. Your business serves as the government's collecting agent, holding your employees' taxes in trust until you make the payment to the IRS, either quarterly or monthly. The IRS also requires business owners to submit: Form 941 or Employer's Quarterly Federal Tax Return reports FICA and employee's federal income tax withheld for the previous quarter, and is submitted every three months.
Form 940 (Employer's Annual Federal Unemployment Tax Return) once a year. This reports the total quarterly payroll tax deposit. This deposit amount determines the federal unemployment tax. This tax is paid by the business. This tax doesn't come out of the employee's paychecks. Though deliquency in filing and paying employment taxes is common with most businesses, the IRS still considers it as illegally borrowing money from the U.S., and they can seize your assets and put you out of business if you need to pay tax debt. To help you lessen payroll tax issues, make it a priority to settle your taxes on time, i.e., pay Uncle Sam first! You might want to consider utilizing a bonded payroll tax service. The service takes care of filing and making payroll tax deposits. If there is a late payment or form, the service pays the late payment penalty.
