Payroll Taxes

TAX NUMBERS
These are identification numbers that you will need to get to be able to properly and correctly report the taxes you withhold from your employees, the employment taxes imposed on you as the employer. It is best to get these as early on as possible.

Federal Employment Identification Number (EIN)

Employer identification numbers are issued for the purpose of tax administration and are not intended for participation in any other activities (e.g., tax lien auction or sales, lotteries, etc.) You will need it to make your deposits and for all the federal forms you are required to file. Your federal EIN works for federal unemployment purposes as well.

To get a Federal EIN you need to file a Form SS4. This can also be done online at www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online, which is an IRS website. Issuance online is immediate and free. There are other sites that will charge you for this service – beware.

State Revenue Tax Number
Unless you are in one of the nine states that don’t tax wages you will need to obtain a state identification number from your state revenue department. This department is called by different names. The website www.irs.gov/businesses/small-businesses-self-employed/state-government-websites lists all of the various state taxing agencies. Find your state agency that collects withheld state income tax. It will have the forms that you need to fill out. You will need to do this in every state where you have employees.

State Unemployment Tax Number
Every state has unemployment taxes. You will be required to get a state unemployment identification number. Sometimes it is the same as your income tax withholding number but usually not. The website www.irs.gov/businesses/small-businesses-self-employed/state-government-websites lists all of the various state taxing agencies. Find your state agency that collects state unemployment taxes. It will have the forms that you need to fill out. You will need to do this in every state where you have employees.

EMPLOYEE TAXES
No matter what form of business you choose, if you have any employees, payroll taxes will be something you must contend with. Following is a summary to offer guidance regarding the rules and regulations from a variety of taxing authorities.

Publication 15
Publication 15 from the Internal Revenue Service is the base guide for federal payroll taxes. It has additional names such as Circular E but you will be able to find it as Publication 15 on the Internal Revenue website, www.IRS.gov. Don’t be confused by a private site like www.IRS.com. It is not the same. This manual is issued at least once a year by the IRS with updated tax tables and rules. If you are doing payroll in-house, it is your first and most-used reference guide.

Current Federal Tax Rates
Following is a chart that contains the taxable wage basis and tax rates for employers and employees. The 2019 maximum contributions and limits are given per employee.

SOCIAL SECURITY
On wages of $147,000 (2022), the employee rate is 6.20%.
On wages of $147,000 (2022), the employer rate 6.20%.

Medicare

On ALL wages, the employee rate is 1.45%.
On ALL wages, the employer rate is 1.45%.
For wages above $200,000 for an individual or $250,000 for joint filers there is an additional surcharge of 0.9% on the employee only.

Federal Unemployment
The employer rate is 0.6%, after credit for paid SUI (state unemployment insurance) on wages up to $7,000.

Federal (Social Security, Medicare, and Income Tax) Depositing

Generally, you must deposit federal income tax withheld and both the employer and employee Social Security and Medicare taxes. You must use EFT to make all federal tax deposits, except you may make a payment with a timely filed Form 941 or Form 944 instead of depositing, without incurring a penalty, if one of the following applies.

A)Your Form 941 total tax liability for either the current quarter or the prior quarter is less than $2,500.
B) You didn’t incur a $100,000 next-day deposit obligation during the current quarter.

Separate Accounting
Separate accounting may be required if you don’t pay over withheld employee Social Security, Medicare, or income taxes; deposit required taxes; make required payments; or file tax returns. In this case, you would receive a written notice from the IRS requiring you to deposit taxes into a special trust account for the US government. You may be charged with criminal penalties if you don’t comply with the special bank deposit requirements for the special trust account for the US government.

Due to the complexities of collecting and remitting taxes on a timely basis, it is wise to outsource this function to payroll companies.