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If you're a small business owner, and have a few employees, payroll tax help can help you avoid missing payroll tax deposit deadlines and paying costly penalties and fines to your state Department of Revenue or the Internal Revenue Service (IRS). So, here is a list of the most frequently asked questions regarding payroll taxes and withholding requirements.
I only have one or two employees. Am I required to withhold payroll taxes from their wages?
Yes, you are required to withhold federal withholding taxes for all employees - even yourself. The Internal Revenue Service requires that anyone that works, and earns an income, in the United States pay federal income taxes as well as Social Security and Medicare. So, if you're not presently withholding federal income tax, you'll need to make arrangements to learn how to do so and make sure to withhold taxes, report them and make tax deposits in a timely manner.
How do I report federal withholding tax deductions for my small business?
You are required to report federal taxes withheld from employees wages and salaries on IRS Form 941. You must report federal withholding taxes, Social Security taxes and Medicare taxes on this forum. Furthermore, you must make timely tax deposits when filing IRS Form 941. For most small businesses, tax deposits are due on the 15th of the month following the month that the employee was paid and the deductions were taken.
Many small businesses choose to make tax deposit payments much more frequently - such as every pay period. Making tax deposits more often will help you by allowing for smaller deposits and avoid letting the deductions become too large and out of hand. The Internal Revenue Service will supply you with coupons to use when making tax deposits and you can make your federal tax deposits easily at any commercial bank.
What is a form 1099, and do I need to use one?
If your small business uses independent contractors, or subcontractors, you may be required to file an IRS Form 1099 for each business or person that performs these types of services for your company. If you pay another business or individual $600 or more in a calendar year, and do not withhold federal taxes from that business or person, you are required to file an IRS Form 1099. Failure to do so will result in a penalty of $75 per 1099 not issued - and you could be held liable for the other person's taxes on that income.
What happens if I do not make my payroll tax deposits?
If you do not make your payroll tax deposits to the Internal Revenue Service, you will incur costly penalties and fines. Furthermore, you may even be prosecuted for criminal misconduct. Payroll taxes are considered to be trust fund taxes and the IRS generally pursues violations vigorously. In short, the money was never considered to be yours and failure to make payments may be construed as theft or fraud. Even if you are not prosecuted, you will have to pay very large fines and penalties.
