Payroll Services with Alliance Insurance Group
Am I responsible for paying payroll taxes?
Misclassification of the individuals who provide services for your business is one of the main reasons business owners face penalties and back taxes from the IRS or Department of Labor. Fines from these agencies can cripple a small business and send business owners back to square one.
The first piece of information that needs to be determined is the business relationship between yourself and the individuals that provide services for you. Three main facts determine the degree of control and independence of a business relationship:
Obviously these relationships can get very complicated which leads to the perceived blurred lines and confusion. It is highly recommended that you seek professional advice up to IRS judgment on this subject.
- Behavioral Control
- Financial Control
- Type of relationship
How are payroll taxes calculated and managed?
If a business relationship is classified as that of an employer-employee relationship, a business is responsible for calculating, withholding, matching, depositing, and filing distinct payroll taxes.
Employers also become responsible for producing additional forms such as the W-2’s and a W3 when it has been determined that an employer-employee relationship is in place.
- Calculating – Determine amount owed on behalf of employee and employer based upon current year tax tables and Circular E
- Withholding – Set aside tax dollars from employee’s paychecks to be allocated into various tax programs
- Matching – Employers must match the FICA (Social Security and Medicare) contributions of employees
- Depositing – Electronically deposit the withheld funds to the appropriate agencies based upon a schedule determined by the total dollars to be deposited
- Filing – Report the amounts being withheld and deposited to the appropriate agencies. This schedule is often times different from the depositing schedule
What are the various types of payroll taxes?
Most payroll taxes apply to all earnings, however there are some taxes that are capped based upon the requirements of the governing agency.
- FICA – Federal Insurance Contributions Act tax
- Consists of Social Security and Medicare taxes
- Must be paid by employee and matched by employer
- Capped based upon annual determination
- Income Tax
- Federal Tax withheld based upon Circular E table
- State Income Tax withheld based upon individual state rules
- Certain States are exempt from State Income tax (AK, FL, NV,TN, TX, SD, WY, and WA)
- Local Income Taxes apply to programs in certain areas for the benefit of cities, counties, school districts and other local needs
- FUTA – Federal Unemployment Tax Act
- Paid by employer
- Provides compensation for workers who have lost their job
- This is generally a capped tax
- SUI – State Unemployment Insurance
- Usually paid by employer
- Tax rate fluctuates on an business by business basis
- Generally Capped
- Other Taxes
- Some states administer disability insurance or workers compensation insurance as a tax that must be accounted for through payroll