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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: 
  • Behavioral Control
  • Financial Control
  • Type of 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.

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.
  • 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
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.

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

Human Resource Solutions

Many small businesses do not have the resources to have a full HR person or department on staff; those who do are still in need of additional support due to the fact that employment laws are changing faster than ever before. Top businesses today are incorporating various tools to help mitigate their risk against employment issues.
  • Employee Handbooks – Help develop a culture within the company and set expectations for behavior and operations
  • Job Descriptions – Protect business owners from any claims resulting in miscommunication and set expectations
  • Document Storage – Protect against claims from department of labor and ensure personal information is kept confidential
  • HR Advisors – Trusted professionals that can help with specific situations and give legal advice to pressing questions
  • Document Libraries – Up to date resources so businesses are not relying on Google to employment information

At Alliance, we are more than happy to offer you a free evaluation of your current business needs.  Click the link to be contacted for a quick evaluation or quote.  For all of your payroll and HR needs, remember, at Alliance we’ve got you covered!

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Alliance Insurance Group
7910 Ralston Rd., Ste 7
Arvada, CO 80002

Phone: (303) 279-9700
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