Thomas G. Post
"The Texas Tax Man"
Certified Public Accountant
Home | Sales Tax | Payroll | ACA | Entrepreneurs | Sole Proprietors

1305 Keefer, Suite 103
Tomball, TX 77375
P O Box 1757
Tomball, TX 77377-1757
Phone - 281-351-2688


Payroll Tax

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.



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