Payroll Tax guide for Small Business.

Depending on the size of your payroll, the payroll taxes may be due either on a half weekly or monthly basis. But in case the total payroll does not amount to $2,500 for quarter of the year, then you would be required to file the payroll taxes on a quarterly basis. However the exact payroll tax payment schedule can be had from the IRS.

To manage payroll you have a choice of either using a payroll software program to manage payrolls on your own or you can hire an outside small business payroll service company especially when your company is growing and the number of employees is increasing. Whatever you choose you need to weigh the pros and cons, to see how you can manage it more efficiently and within your budget.

Lets move on to understand the three types of payroll taxes.

Social security and Medicare:

In the year 1935 the Federal Insurance Contributions Act (FICA) was brought into practice to make provisions for a social security program. The FICA is about withholding payroll taxes from the paychecks of the employees so as to generate retirement savings for them. The basic objective of this program was to enable a retirement income for the citizens of America, and financial assistance in case where the primary wage earner of the family becomes disabled or dies. Because of this security program today there are more than 90 percent of the retired citizens who are receiving social security. Though, the only unfortunate part of it is that the inflation rate has significantly reduced the impact of this security program on the income of the retirees.

Medicare is a program that is designed to enable people older than 65 years of age to pay for their medical costs. Something around 98 percent of the American population above 65 years of age is getting the benefit of this provision, and they are able to pay a certain portion of their medical bills through this. But remember that the Medicare program does not pay for most types of medication.

As per the provisions of the social security program under FICA, the employer is also required to provide for an amount equal to the amount that is withheld from the employees paycheck. The percentage of amount to be deducted on a month basis is 7.65 percent of which 6.2 percent goes towards social security and 1.45 percent is for Medicare. To calculate the exact amount of the social security and the Medicare that youre required to pay for each employee you can refer to the publication fifteen of IRS. This publication contains all the required information on which you can base the calculations.

The payment schedule which you have to follow to make payments for FICA depends mainly on the size of the monthly payroll. If the size of the payroll is large you will have to make faster payments, for instance a small business payroll with just one or two employees may need to file it quarterly while a larger concern which may be paying to say about $100,000 as the weekly payroll may be required to file these taxes within a period of three days from the day the payroll is completed. So depending on the size of the payroll you can find out what your payment schedule is going to be from the IRS.

Employment taxes:

It is the responsibility of each business to withhold the Federal income taxes from the salaries that it pays to its employees. These withheld taxes are filed as per the W4 Employees Withholding Allowance Certificate, which needs to be filled out by each and every employee. The amount of Federal income tax that the employer is required to withhold can be found out using W4 along with the IRS fifteen publication.

The amount to be withheld generally depends on the following factors:

* Employees marital status

* The number of withholding allowances that the employee has declared.

* Any exemptions that have been asserted by the employee for these taxes.

In case the employee wishes to change the amount to be withheld he is required to submit a new W4 Certificate in which the number of dependents (withholding allowances) has been changed along with the tax status of each dependent.

Not withholding the appropriate amount or failing to pay Federal withholding taxes will result in penalties by the IRS. Penalties may also apply in case of late payments.

It is a statutory requirement that any small business payroll that employees a person from outside is required to have an individual employment identification number (EIN). This employment identification number is unique for each business and in case you have two or more businesses then you will be required to have an employment identification number for each business of yours. To get an employer identification number you will have to file an SS4 for application with the IRS.

Unemployment tax:

In 1939 the Congress passed the Federal unemployment tax act to help the employees who have lost their jobs to get an unemployment pay.

As per the Federal state unemployment insurance program run by the department of labor, unemployment benefits are provided to those eligible workers who are unemployed and are eligible in other terms of the state law as well. The unemployment should not result from their own fault.

The Federal unemployment tax is reported by the business using the IRS form 940, and the business is required to pay for both the Federal and the state unemployment tax. The unemployment taxes are not supposed to be withheld from the employees income and they must completely be paid for by the business only. The state unemployment tax is calculated as a percentage of the total number of employees that the business has and the number of ex-employees who are collecting unemployment pay. In case the business pays the complete amount to the state, the federal tax will be only a 0.8 percent for each employee on the payroll who is drawing up to $7,000.00 of income. However for businesses who do not receive the maximum state credit the rate is fixed at 6.2 percent for calculation of the Federal unemployment tax.

Conclusion: In this article we have introduced the small business owner to three main issues related to payroll. It is advised that even if you have a single employee you must small business payroll find out more about the types of payroll taxes that you need to pay and make proper and timely payments for each of these so as to ensure no penalties being imposed by the IRS.