Large companies withhold and remit payroll taxes which include unemployment taxes, federal, state, and local income taxes, Social Security and Medicare taxes. Employers should know how to manage payroll taxes and which tax should be paid or which not. One can reach out to a professional tax advisor for payroll tax information. While doing so, you must be aware of a few important things: While you consult a professional tax advisor on payroll and tax-related matters, here are some basic concepts you should know: How to Start:
Initially, an employer should apply for his Employer Identification Number (EIN) online, which would be beneficial for tracking employer's tax payments. Before hiring, verify if the person passes the eligibility criteria or not for working in UK by I-9 form. Also, the employer must responsibly collect employee’s Social Security number, along with form W-4. Social Security number is mandatory for maintaining tax statement, whereas W-4 form calculates federal income tax, withheld from each paycheck. Form 941, Quarterly federal tax return for employers and Form 940, the annual Federal unemployment (FUTA) Tax return, are filled for Internal Revenue Service’s and the Social Security Administration. Who pays the taxes? Federal and state income taxes are withheld by the employers from the employee's wages, according to the information they have entered in their Form W-4. Only employees pay Income taxes through these withholdings. As per the federal government rules, a 12.4% tax will be charged on an employee’s pay for Social Security, on up to $118,500 (increasing to $127,200 for 2017) and for Medicare, it is 2.9% on all wages. These taxes are paid equally by the employees and employers, so each of them pays a total tax of 6.2% for Social Security and 1.45% for Medicare. Employers withhold 0.9% additional Medicare tax, from annual wages of an employee, in excess of $200,000, since 2013, and the employee who is married and pays taxes jointly, the excess amount is $250,000. Besides all, employers also pay the federal unemployment tax (FUTA) which helps in funding of nation’s unemployment insurance system. As an exception, employees’ do not have to pay state unemployment taxes. Independent Contractors Working with independent contractors gives employers relaxation to not withhold any kind of taxes from employee wages. Only contractors solely pay their taxes directly to the federal government. Employers are free to not match any Social Security or Medicare taxes. If contractors are to be treated as actual employees to withhold taxes, it would really be troubling for that company. Before you get your employees on board, it becomes essential to understand all the rules around collecting and paying payroll taxes. If any error occurs, directly report it to the IRS so that it can be fixed. In case if you have any query, consulting with a payroll or tax professional is recommended.
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