Almost every business manager, new and experienced ones alike, have anxiety attacks over the increasingly complex and burdensome rules and regulations regarding payroll taxes. These requirements include filing payroll tax returns, withholding taxes from employees and making
Who is an employee? The general definition of an employee is one whose employer has the right to direct and control his work, as to the details of how, when, where, and how the work is done. An employee is distinguished from an independent contractor who controls his own working life and works for numerous clients. The IRS considers any individual who is associated with a company as an employee placing the burden of proof on the company.
The IRS offers Circular E, "Employer's Tax Guide," a free pamphlet outlining the rules and regulations for payroll deductions and deposits. (For a Copy call 1-800-TAXFORM--829-3676.)
Deposits of taxes withheld must be submitted to your bank with "depository receipts" on the 15th of the succeeding month. If your tax withheld exceeds $3,000, then the deposit must be made within the three business days of the payroll date.
Federal Unemployment Insurance (FUI) Tax is ____% of the first $7,000 of an employee's pay. Deposits of FUI Taxes must be made not later than the last day of April, July, October, and January for the preceding quarter.
BE CAREFUL! The IRS assesses penalties and interest for late deposits.
Most states require employers to pay a percentage of the first $7,000 of pay to the State Unemployment (SUI) Fund. The money is used to fund the benefits that are paid to former employees who were terminated without cause and who worked for at least 20 weeks. Each company's liability is calculated based on its prior year claims experience. The SUI tax rate will be adjusted to assure that the company maintains a minimum balance relative to its experience rating. The company must register with the state and file a quarterly tax return and make a payment on the last day of the first month of each quarter for the preceding quarter.
Many states levy a state income tax and require withholding of taxes from employees just like the IRS. The state income tax withholding payments are made monthly, usually on the 15th day of the next month, with a preprinted form. If withholding exceeds a certain amount, deposits must be made within three business days of the payroll date. By the last day of the first monthly of a quarter, a reconciliation sheet must be submitted to the state.