If you’re a new business owner, you probably have a lot on your plate. One of your biggest responsibilities is handling payroll, ensuring that taxes are withheld and employees receive their paychecks on time. It’s normal to have concerns regarding this process, and here are some of the most frequently asked questions.
Which payroll taxes must be withheld from employees’ paychecks?
While there are a variety of optional payroll deductions that are voluntary such as health insurance, retirement plans and life insurance, there are five deductions that must be withheld:
- Federal income tax – This is broken down into tax brackets, and the amount due depends on how much a person earns per year. The specific rates can fluctuate from year to year, but you can find the tax brackets for 2015 here.
- Social security tax – This type of tax is applied to any income that comes from labor. You are required to withhold a minimum of 6.2 percent from employees’ paychecks.
- Medicare – Your employees are required to pay 1.45 percent on this tax. If they earn more than $200,000, they must pay an additional 0.9 percent.
- State income tax – The specific amount of money from state income tax varies, and you can find the tax rate range for your state here.
- Local tax – Again, this can vary and can include things like city taxes, school district taxes, etc.
When are employment taxes due?
For quarterly federal tax returns, the due dates are April 30, July 31, October 31 and January 31. This is when you will use Form 941 to report income tax, social security and Medicare. When it comes to actually making deposits, you can choose between a monthly and semi-weekly schedule.
If you choose monthly, then you have until the 15th of each month to deposit taxes for the previous month. For the semi-weekly schedule, you must deposit taxes each Friday for payments made on Saturday, Sunday, Monday, and/or Tuesday from the previous week. If you have any further questions about deadlines, this resource from the IRS should help.
How do I avoid a tax penalty?
For starters, you need to get organized and simplify payroll to the point that you have no trouble maintaining accurate records. That’s why it’s recommended to utilize some type of payroll software. This is relatively inexpensive and can assist with you a variety of tasks like automatic calculations, employee time tracking and direct deposit. It’s also important that you stay on top of changes to laws and regulations that affect areas like minimum wage, FICA rates and employee benefits.
In addition, you may want to enlist the services of an HRO to handle all of your payroll tasks for you. These firms understand all of the ins and outs of payroll processing and can come up with customized solutions for your business. That way you can outsource your payroll and know for sure that everything is handled correctly.
Getting acquainted with payroll is extremely important when you’re a new business owner because what you don’t know can hurt you. Fortunately, some research and the right resources should help you get a grasp of the process.