Taxes
Employment Taxes

Employment Taxes

Employment tax rules are extremely complex. If you try to handle them yourself, you are bound to make a costly mistake and you'll pay interest and penalties. If a payroll service makes the mistake, typically, it will pay.

As an employer you have a tremendous fiduciary responsibility to collect and withhold taxes from employees on virtually every paycheck you issue. Throughout the United States, you must withhold an appropriate amount for federal income and other earnings-related taxes. Many states and some municipalities also require the payment of an income or other tax on earnings.

Your employees must fill out a federal W-4 form and a Form I-9 from the Immigration and Naturalization Service. States that do not use the same income basis for determining tax liability as does the federal government may require that employees fill out state filing forms.

You, or your payroll service, must determine the appropriate amount to be withheld for each individual. If you withhold too little from your employee's incomes, you will be penalized by the governments involved. The federal government also requires that you withhold your employees' share of federal Social Security and Medicare taxes. Tables for calculating federal withholding taxes are available from the Internal Revenue Service at

1-800-TAX-FORM

State withholding tables may be obtained from your state income tax department.

Budgeting for your share of the payroll taxes
The employer is also responsible for a share of their employee's unemployment, Social Security, and Medicare taxes. The amount that you pay will depend on many factors salaries, your firm's balance, if any, in your state's unemployment insurance account, dates of hire, and a host of other considerations. As a quick and dirty rule of thumb, allowing 13 percent on top of your gross payroll should cover your share of the payroll taxes.

Timing of employment tax payments
If you are a growing company, paying employment taxes yourself can be very frustrating. Employment tax rules change as the size of the company increases both your liability and the time frame in which the taxes must be paid. Following are two general guidelines:

• New employers pay federal withholding taxes on a monthly basis. As the business grows, the frequency increases to semi-weekly. For the largest businesses, taxes are due within twenty-four hours of each payroll.
• Each state has its own rules for frequency of payment. Generally, payments are not required more frequently than are federal taxes. But be sure to check with your state tax office.