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Small Business Tax Obligations: Payroll Taxes

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Small Business Tax Obligations: Payroll Taxes  Reply with quote  

One of the issues small-business owners have to contend with is staying current with the many obligations for local, state and federal taxes. While most business owners hire an accountant or a tax professional to deal with tax-related issues, understanding the tax system is important to those who bear the ultimate responsibility for fulfilling all tax obligations.

Calculating Payroll Taxes

There are three steps to calculating payroll taxes:
Determine taxable workers
Determine taxable wages
Calculate withholding amounts

Taxable Workers
Workers can be employees or independent contractors. Employees are treated as taxable workers subject to payroll taxes, while independent contractors are responsible for paying their own taxes. Usually, workers are considered employees if you have the right to direct and control the way they do their work, rather than merely the results of the work. However, the lines between independent contractors and employees are not always clear-cut. In order to help business owners determine which workers are taxable employees, the IRS has common law rules, which include behavioral, financial and relationship tests.

Taxable Wages
Taxable wages are compensation for services performed and may include salary, bonuses or gifts. Some forms of compensation, such as business-expense reimbursements for travel or meals, do not qualify as taxable wages. For the expenses to be nontaxable, employees must verify them through receipts or expense reports. They must also be necessary, reasonable and business-related.

Calculating Withholding
After you've figured out which workers qualify as taxable employees and which wages are taxable wages, the next step is figuring out the amount you must withhold for federal, state and local taxes, as well as FICA and FUTA.
Post Tue Mar 06, 2012 6:25 am
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Great post. This is quite informative.
Post Wed Mar 07, 2012 7:37 pm
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