Payroll and Taxes: What Your Business Needs to Know


As a business, it’s vital that you understand how taxes work when it comes to payroll. Your business must pay federal, state, and any local taxes for your area.

While it may seem a bit complicated, we’ll walk you through what you need to know to ensure compliance with tax laws for your company.

Tax Forms

First and foremost, there are various federal forms that your business must file. These include:

  • Your business must have an Employer Identification Number (EIN) so that the government can track your tax payments. You can apply for an EIN here.
  • A W-4 must be filled out by every employee, which provides them the information needed to calculate the amount of federal income tax that should be withheld from each of their paychecks.
  • An I-9 form must also be filled out by every person that your company hires. This form verifies that your employee is eligible to work in the US.
  • The IRS Form 940 is your annual federal unemployment tax return. This helps to pay for the administration of the national unemployment insurance program.
  • The IRS Form 941 is your business’ federal tax return that should be filed quarterly with the IRS.  This form reports employee earnings, employer and employee social security and medicare tax paid, along with employee-paid income taxes. This form is due by 4/30, 7/31, 10/31, and 1/31 each year.

It’s important that you also check with your state and local governments to ensure that you are compliant with the forms you must file with them, as well.

Payroll Taxes

It’s important that you also understand the taxes that are withheld during pay periods for your business. These include:

  • Federal and state income tax based upon the information provided on an employee’s W-4.
  • Social Security and Medicare Tax (FICA) is split between employees and employers. Employees are responsible for paying 6.2% of their gross pay (up to $128,700) to Social Security and 1.45% to Medicare. Employers must match what their employees are paying.

Working with Independent Contractors

It’s important to note that taxes are withheld from actual employees of your business. If your business works with independent contractors, taxes are not withheld from that worker’s wages. Instead, contractors pay their taxes directly to the federal and state governments.

W-9 Form should be filled out by independent contractors when they begin doing work for your business.

1099-MISC should completed at the end of each year for each independent contractor that you work with to show how much you paid them over the course of the year. The contractor then uses that statement to calculate how much in taxes they owe when it comes to tax time.

Some of this may seem confusing, and you might be worried that something might slip through the cracks and put your business at risk for hefty fines. A payroll software might be exactly what your business needs. It allows your HR team peace of mind that your business is staying compliant and proper forms are being filed.

If a payroll software is something that might be of interest to your business, contact one of our payroll experts today for a free quote.

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