Numbers from the U.S. Bureau of Labor and Statistics (BLS) show that hundreds of thousands of new businesses are started each year. If you find yourself among the entrepreneurs who have started new ventures in 2018, we want to welcome you aboard.
As a new business owner, there is a lot you need to know about payroll. A good place to start is payroll tax. Both federal and state laws address payroll taxes in one form or another. You need to be sure you know the laws that apply to you so that you can maintain compliance. Below you will find a brief overview. If you would rather not handle payroll and taxes alone, BenefitMall would be more than happy to come alongside you with a customized payroll solution.
Payroll Taxes for Sole Proprietors
The law considers a sole proprietor both an employer and employee simultaneously. If you are a sole proprietor with no employees, you don't have to worry about payroll taxes as such. Rather, you will pay a quarterly self-employment tax that is essentially the same thing.
If you are a sole proprietor with a spouse and/or children assisting you in your business, you won't have to worry about payroll taxes just as long as your family members don't receive a direct salary from the company. For example, your spouse may act as an administrative assistant to help you run your business. If all your customer payments go directly into a joint checking account so that your spouse is not receiving a weekly paycheck, payroll taxes will not apply. You are both still covered by self-employment tax.
Federal Payroll Taxes for Everyone Else
All other businesses with employees on the payroll, regardless of the number, are responsible for payroll taxes. These taxes cover contributions to Social Security and Medicaid, the government's health insurance program for seniors. Payroll taxes are reflected on employee W-2s as FICA.
There are two parts to the federal payroll tax: the employer contribution and its complementary employee contribution. Both parties pay a tax of 6.2% of gross income, for a combined payment of 12.4%. Employers are required by law to withhold the employee's portion, combine it with their contribution, and pay the full tax when due. This is to be done on a regular basis as outlined by IRS regulations.
State and Local Payroll Taxes
All qualifying employers are subject to federal payroll taxes regardless of location. However, state and local payroll taxes are different. They are applied only to businesses located within their jurisdictions. Note that not all states apply a payroll tax. The same is true for local municipalities.
It is up to you to know the state and local laws that apply to you. Should you choose to work with a payroll provider like BenefitMall, it becomes our business to make sure your company is complying with those laws.
In terms of scheduling payments, the IRS expects payment either on a monthly or semi-monthly basis. This is determined by your total tax liability from the previous year. As a new business owner, you may have to estimate your liability for the first year due to the newness of your business.
States and local municipalities may have their own schedules for reporting and paying payroll taxes. Alternatively, they may follow the federal schedule. It just depends on how the laws in those jurisdictions have been written.
Again, do not hesitate to contact us if you need assistance with your payroll. We can offer you a full-service solution, a cloud-based payroll solution or an advanced payroll solution that handles everything for you.
BLS – https://www.bls.gov/bdm/entrepreneurship/bdm_chart1.htm