With respect to payroll taxes,
an employer serves as both a tax collector and a taxpayer.
The business person is required
to collect and pay over one-half of the federal social security
and medicare taxes (7.65%).
The employer is a direct taxpayer
with respect to the other one-half of social security and meidcare
taxes (7.65% also).
The business owner is a direct
taxpayer with respect to federal and state unemployment taxes.
The business owner/employer
serves as the biggest tax collector of all when it comes to employee’s
income tax. The employer is required to obtain a W-4 statement
from an employee, which indicates the employee status for withholding.
The employer is then required to compute the proper amount of
taxes due by each employee for each pay period, withhold it and
pay it over to the taxing authorities in a timely manner. Severe
penalties apply to delinquent payments.
An employer incurs a substantial
liability with respect to these taxes for which he/she serves
as the tax collector. Again, these taxes include one-half of the
total social security and medicare tax and 100% of the employee’s
income tax. A responsible officer of an incorporated entity is
held personally responsible for these "Trust Fund Taxes".
It sounds ominous, I know but
it’s not really that bad. It simply a matter of learning
how to compute the taxes required for each pay period and then
making a timely payment. Computer programs such as QuickBooks
do most of this for you. One more thing re: payroll taxes –
Quarterly reports (941) and annual reports (940 and W-2’S)
are required. These requirements actually involve fairly simple
clerical procedures, which can be learned in a few hours.
The hard part is actually paying
the taxes. Businesses have a tendency to make unauthorized loans
from taxing authorities. This is not a good business practice.
Bankers have historically been
very stuffy and hard to deal with. This has changed a great deal
recently as banks have gone after the small business market. The
IRS has had a campaign selling the idea of a friendlier IRS. The
bankers have not really had such a campaign so most business owners
believe the IRS is a friendlier source of loans. Believe me this
is a misunderstanding of the message of both the IRS and the banking
community. The IRS (or the State Comptroller) is not in the business
of loaning money. Their rates and procedure are much tougher.
CALL NOW AND YOUR FIRST CONSULTATION IS FREE!