It will be time to do end-of-year tax preparations again soon, but you can already be planning for your small business payroll taxes to stay ahead of the game. Things can certainly sneak up on you during the busy holiday season that’s coming, and we think you deserve to be extra prepared so you can enjoy those moments.
(In fact, keeping you ready and stress-free when it comes to taxes is also why we did a post on “5 Types of Business Taxes” way back in July.)
Everything You Need to Know About Payroll and Taxes for Small Business
Taking care of your employees is one of the basic things you need to do in order to stay in business. The other thing you can’t afford to ignore is taking care of the IRS.
As we’ll discuss in a minute, failing to pay your taxes fully and in a timely manner is a good way to put yourself out of business. Since you’re reading this post, though, we assume your goal is to keep your company open (and actually grow it).
The IRS has a lot of detailed information on its website on Employment Taxes. From understanding all of the taxes to depositing and reporting, everything you need is there. However, their pages can be overwhelming, so keep reading an easier summary.
We think you should have all the best information when it comes to what taxes you are responsible for…especially concerning payroll taxes on your employees. No one blog post can equip you with everything you need to know about small business taxes, so we’re covering the essentials.
Schedule a call with one of our tax services professionals for more specific advice on your personal situation.
Types of Small Business Payroll Taxes
Regardless of the type of industry you’re in, as a small business owner with employees, you are responsible for paying certain taxes each time you pay your workers. Here are the taxes you need to know about:
Federal Income Taxes
– FICA – Social Security and Medicare Taxes
The two components of the “Federal Insurance Contribution Act” (FICA) are payments every worker (and their employer) makes to fund both Social Security and Medicare on a national level. Employers pay half of the tax and employees pay the other half with each paycheck.
– FUTA – Federal Unemployment Taxes
According to the “Federal Unemployment Tax Act” (FUTA), employers are responsible for paying unemployment taxes for each employee. The employees themselves do not have anything taken out of their paychecks for this.
And don’t forget:
State Income Taxes
– SUTA – State Unemployment Taxes
The “State Unemployment Tax Act” (SUTA) is another payment that employers make on behalf of their workers. It is similar to FUTA, except that it is done at the state level. Each state has its own unemployment plans with varying tax rates, so be sure that you’re familiar with the one(s) in the state(s) where you have employees.
Local Payroll Taxes
The city you live in may also require your business to pay certain payroll taxes, so be sure that you don’t overlook those. Tennessee, for example, (where we operate offices in Jackson, Dyersburg, Paris, Brownsville, Martin, Milan, and the new Blue Oval City) does not have any cities with local payroll taxes. If you’re not sure about your particular situation, this list of states where cities and counties levy additional taxes will help.
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How Much Is Payroll Tax For a Small Business?
Small business owners sometimes struggle to calculate payroll taxes properly. (Which is why it might be in your best interest to outsource your payroll. If that’s something you’re considering, here’s a post comparing 7 of the largest payroll outsourcing companies.)
For those still in DIY mode when it comes to payroll, here are the percentages that the government requires for the various payroll taxes mentioned above:
- FICA – 15.3% split between the employer and the employee (7.65% each). Of that, 12.4% goes to Social Security and 2.9% goes to Medicare. An additional Medicare tax of .9% may be required for high-wage earners (individuals making more than $200,000 or married couples filing jointly making more than $250,000 per year).
- FUTA – If you pay an employee more than $1500 in a given quarter or have employees working part of a day for 20 or more weeks in a calendar year, you are required to pay 6% on the first $7,000 they make that year.
- SUTA – As we said earlier, each state sets its own rates. However, if you pay your SUTA taxes on time, you may be able to claim a federal tax credit of 5.4%. That effectively reduces your FUTA tax to .6% if applicable.
Remember, you are only required to pay these taxes on individuals who are legal employees of your company. Independent contractors that work for you on a project basis are responsible for paying their own taxes when they file.
Penalties for Late Filing
If you fail to properly file your tax return and pay the correct amount of taxes by the time they are due, you will be hit with penalties by the IRS. How much you have to pay is based on the amount you did not pay on time.
According to the IRS, the failure to file penalty is currently 5% of unpaid taxes for each month or part of a month that they are overdue. This penalty will not exceed 25% of your total unpaid taxes, however.
It’s in your best interest to prepare in advance and pay on time. (If you need more reasons to not be late, FORA Financial has this article on why businesses should avoid filing taxes late.)
How CRS Can Help Make Small Business Payroll Taxes Easier
For the past 40+ years, we’ve helped small business owners just like you conquer taxes. Managing taxes on your employee’s paychecks doesn’t have to be difficult. Our Payroll & HR Support pros can guide you through whatever you need.
Here are 3 more easy ways you can get some help from our team:
- Watch a free replay of a webinar we did on “Costly Payroll Mistakes.”
- Download our free guide: “9 Simple Accounting Mistakes That Are Costing Your Business Money.” (Hint: one of them is about taxes!)
Schedule a call. We’re ready to guide you to payroll tax success!