Starting your own business involves a great deal of hard work and if you plan to employ employees to work for you, salary payment is an important aspect of business. You should be aware of the numerous laws of the land concerning business apart from those relating to workers's compensation. Knowledge is power and understanding will assist you to stay clear of costly mistakes causing legal problems. One important factor relating to employees is the deduction of payroll taxes from the income of the employee. There are different taxes to be subtracted, before paying the workers.
It is the task of the company to deduct particular taxes from the wage of the employee and pay to the government. The taxes therefore subtracted at source are preserved in a separate account and paid to the government at the end of the financial year. The following taxes are to be subtracted from the payroll check of the employee:.
1. FICA Taxes:.
This tax is a set portion of the wage and is uniform for all employees. These are social security and Medicare taxes and are subtracted at the rate of 6.2 % for social security and 1.45 % for Medicare. This is the easiest tax computation, due to the fact that it is the same for all the workers.
2. Federal Taxes:.
The federal Taxes are more complicated for estimation as the reductions depend upon many factors like the overall income made by each individual, his marital status, number of dependents, etc
3. State Taxes:.
Apart from the above 2 kinds of Payroll taxes, there is a reduction to the taxes levied by the state governments. The rates for tax deductions vary from state to state and consist of numerous other city or county levies. These taxes will depend on the state where your business is found.
Once the payroll taxes are deducted from the paychecks of the employees, the collected quantity is maintained with the company and it is paid to the government treasury at the end of the financial year. Nonetheless, the general tax deduction rates will rely on the state business is run.
Computation and payment of Payroll taxes is the company owner's commitment to the Internal Revenue Service. Deduction of payroll taxes is necessary for all companies and there are no exceptions to the guideline. Default in deduction of taxes on the part of the employer will attract charges and fine. Even an error in the calculation of payroll tax will draw in a penalty and you might wind up losing a lot of cash in fines. For that reason, it is essential to be accurate in the estimation of payroll taxes for your employees as well as your business.