The Tax Situation When You Have Employees
Once you have at least one person working for your business, you’re an employer. Being an employer comes with a wide range of responsibilities, including withholding, depositing and paying employment taxes. How can you make sure you’re fulfilling all your tax duties to avoid getting hit with fines and fees?
Other key responsibilities
The employee tax rate for Social Security is 6.2%. Employers are also responsible for withholding the 0.9% Additional Medicare Tax from an employee’s wages and compensation that exceeds a threshold amount based on the employee’s filing status. You are required to begin withholding the Additional Medicare Tax in the pay period in which you pay wages and compensation in excess of the threshold amount to an employee. There is no employer match for the Additional Medicare Tax.
Employers report and pay Federal Unemployment Tax Act (FUTA) tax separately from federal income tax and Social Security and Medicare taxes. You pay FUTA tax only from your own funds. Employees don’t pay this tax or have it withheld from their pay. Again, refer to Publication 15 and Publication 15-A for more information on FUTA tax.
This is just the beginning of an employer’s responsibilities. You are likely subject to state withholding rules as well. It’s essential that employers be on top of the general rules and any annual rate changes. Understanding these tax issues is important, since you bear the responsibility of fulfilling your tax obligations related to your employees. It’s important to send out payments on time to avoid penalties and late fees. Be sure to work closely with financial professionals to make sure you stay compliant.
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