What You Need to Know About Payroll Taxes

Payroll taxes. Simple, right?

Ok, maybe not. Withholding, filing and remitting your payroll taxes can be a big undertaking for your small business. It’s complicated. It’s time consuming. It’s ever-changing. Really, it’s anything but simple and it’s something you want to make sure you are doing correctly.

If not, it can become costly.

Let’s look at some of the basics you need to know when it comes to payroll taxes.

First, make sure you have an Employer Identification Number (EIN). It’s required and is used by the government to track your tax payments. After you have that, make sure you know all these forms and the difference between them.

Form I-9 is a form that needs to be filled out by everyone you hire to verify they’re eligible to work.

Form W-4 is completed by you, the employer, to provide information on federal income tax withholding.

Form 941 is the federal tax return filed quarterly with the IRS.

Form 940 is the Federal Unemployment Tax Act return, filed annually with the IRS.

Form W-2 is the employee’s annual wage and tax statement.

In addition to all these forms, you’ll need to check and see what local and state forms are required of you.

Now that you know all the forms, it’s important that you know the difference between an employee and a contractor. The Internal Revenue Service uses a right-to-control test to assess your tax liability and they map out how to determine if a person is an employee or contractor on their website here.

If you have determined your worker is a part-time, full-time or seasonal employee, you must withhold the following:

  1. Federal Income Tax based on the information provided by your employee on the W-4 form.
  2. State Income Tax (where applicable) based on the information provided by your employee on the state and local tax forms.
  3. Social Security Tax (FICA), which is calculated on a percent tax for both Social Security and Medicare on all wages. You and your employees split this tax equally, with each paying 6.2 percent for Social Security and 1.45 percent for Medicare.
  4. Federal Unemployment Tax Act – funding the unemployment insurance system
  5. State Unemployment Tax – varies by location.

If your worker is an independent contractor, they pay their taxes directly. You withhold nothing and do not have to match anything for them. You will need the following forms:

Form W-9, filled out by the independent contractor.

Form 1099-MISC, completed by you to disclose how much was paid to the contractor throughout the year. 

There’s a lot to know and a lot to do when you’re dealing with payroll taxes, but it’s extremely important to know it all and do it all to avoid any costly fines. That’s why many small businesses rely on a partnership with Oasis to help them navigate payroll so they can focus on their core business and have confidence they are in compliance with the IRS. It’s peace of mind you’ll appreciate and sound business practice to help you grow.

Whitney Eagleburger

Whitney Eagleburger is Business Development Manager at Oasis, a Paychex® Company. Whitney specializes in consulting with small to mid-size businesses in Kansas City. She creates long-term relationships built on an authentic approach that generates repeat relationships. Specialties: Human Resources Outsourcing, Payroll Administration, Benefits Administration.


December 17, 2018

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Whitney Eagleburger