Professional Handling of Your Payroll Taxes in Marlton
Paying your employees the correct amount and on time is a critical requirement for any business. However, compensating your staff sounds easier than it actually is. A lot goes into preparing paychecks at the end of any pay period. Not only do you need to accurately record working hours, but employers are also responsible for calculating and withholding payroll taxes. Once withheld, these taxes must also be remitted to the appropriate government agency on time and in the right amount.
The biggest mistake that you as a business owner can make is to handle your payroll in-house without the necessary infrastructure. Payroll functions can quickly become complicated, and a small mistake often results in further issues down the road. For example, withholding the wrong federal tax amount from employee paychecks may violate compliance guidelines and attract fines from the IRS. Mistakes made when recording work hours and overtime may also result in paycheck errors, which ultimately affect morale.
When it comes to handling payroll taxes, you need an experienced and professional service by your side. At Greentree Accounting & Tax Services, our founder, Enrolled Agent, and payroll tax expert, can handle your payroll while helping you save costs, boost productivity, and protect sensitive employee data. Contact our Marlton payroll tax firm today to schedule your consultation.
Defining Payroll Taxes
Payroll tax is a collective term that refers to amounts withheld from an employee's paycheck by their employer. During any given pay period, there are income taxes, unemployment taxes, and other deductions that every employee is responsible for. Payroll taxes fall under two main categories: taxes and deductions. While taxes come in the form of federal, state, and local taxes, deductions refer to social security contributions, Medicare, child support payments, retirement, and insurance premiums. As a small business owner, you're responsible for calculating and deducting the respective amounts from an employee's paycheck on time.
Employers are also responsible for remitting taxes and deductions to the appropriate agency. Federal income taxes are sent to the IRS, while state and local taxes are sent to the corresponding revenue/labor department. As you can see, handling payroll taxes and deductions can be quite complicated. Whether you have a team of 10 or 10,000 workers, you'll need to correctly calculate taxes during every pay period.
Why it Makes Sense to Hire a Professional for Your Payroll Taxes
Handling payroll internally may sound like an excellent opportunity to save costs. But once you start working through every employee's compensation package, you'll soon realize how things get complicated. This is why small businesses are the most common culprits when it comes to tax violations. With about a third of small businesses penalized for errors in their payroll, the consequences of IRS fines can be crippling. For example, liens and levies may be placed against your company's assets. These actions typically include the seizure of your assets, which may significantly affect daily operations.
Additionally, tax laws are always changing. This means that you'll need to stay on top of up-and-coming payroll tax laws to avoid making costly mistakes. Hiring an experienced team of professionals to perform and oversee your payroll tax needs can help you avoid making critical errors at the end of every pay period. If you dread preparing paychecks for your employees, consider letting Greentree Accounting & Tax Services tackle these complex workflows for your business.
What Do Payroll Taxes Include?
Because payroll taxes represent up to 70% of federal income, being aware of each type of tax and deduction will help you avoid costly penalties down the road.
There are three main types of payroll taxes- federal, state, and local. Federal tax is a pay as you earn tax that's taken out of each employee's paycheck. The IRS has guidelines for how much every type of employee should pay in federal taxes- and the amount is dependent on gross earnings, nature of work, type of compensation, etc.
State taxes are income taxes withheld from an employee's paycheck. The specific amount varies by state- and each state has its own guidelines. Local taxes refer to amounts that are deducted for municipal use. For example, specific counties within a state may deduct taxes to support schools, transit systems, and other local services.
When it comes to deductions, the amount will vary by employee and compensation packages. Social security and Medicare deductions are two of the most common, while wage garnishments are dependent on each employee's current financial obligations.
Who Needs to Pay Payroll Taxes?
In addition to calculating, withholding, and remitting payroll taxes for employees, businesses are also responsible for paying their share of taxes. The federal government, states, and local municipalities rely on business taxes to provide public services. And because the amount of taxes paid by companies is significant, government agencies pay close attention to irregularities in tax payments.
In general, most companies are responsible for paying taxes in proportional amounts to what their employees pay. This means that as an employer, you should be prepared to pay taxes that are based on employee wages. The first step towards paying business taxes is filing regular reports with the IRS, state, and local municipalities. Each government agency will require a specific filing process. For example, federal taxes should be reported on a quarterly basis by filing Form 941. This form includes details of all income tax, social security deductions, tips, and Medicare deductions that were made from employee paychecks.
For individual states, payroll taxes are filed quarterly using wage detail reports. Each state has its own requirements for filing this report. And finally, local municipalities have their own requirements for reporting local tax deductions. The amount your business will owe in payroll taxes is dependent on the total wages paid out versus deductions withheld. Most states and territories also have tax-free thresholds, where your business doesn't have to pay additional payroll taxes if the amount withheld is below a specific threshold.
How Much Do I Need to Pay in Payroll Taxes?
When it comes to deductions in payroll, employers need to contribute an amount that corresponds to how much money their employees are having withheld. For example, both employers and employees need to contribute 6.2% of the employee's paycheck towards social security- for a total contribution of 12.4%. Therefore, a total of 12.4% of the employee's paycheck is remitted to the IRS as social security tax (6.2% deducted from the actual paycheck, while the employer pays the other 6.2%).
The same process applies to Medicare, where employers and employees each contribute 1.45% (of the employee's paycheck) for a total of 2.9%. however, only the first $132,900 is considered when withholding social security taxes.
Because calculating payroll taxes and deductions can be time-consuming, it makes sense for your business to seek professional guidance in this area. Payroll service companies understand what deductions you need to make- and in what proportions. They also have tools and workflows that can handle complex payroll duties in only a matter of minutes.
5 Mandatory Deductions from Your Employee's Paycheck
When calculating payroll taxes, you should be aware of specific deductions that need to be made from each employee's paycheck. While deductions may vary from one worker to another, here are some of the most common mandatory deductions you can expect to withhold from your employees:
1. Federal Income Tax withholding
Federal income tax is a pay as you earn tax that's withheld from an employee's paycheck during every pay period. Federal income tax is remitted to the IRS, and the amount deducted is pre-determined using tables that are published by the IRS each year. Congress determines federal income tax withholdings.
The more an employee earns, the higher the amount deducted from their pay. Employers are responsible for calculating, withholding, and remitting federal income taxes to the IRS for all their employees.
2. Social Security & Medicare Taxes (also known as FICA taxes)
Social security and Medicare taxes are withheld from an employee's paycheck to fund the corresponding government agencies. In the case of social security taxes, each deduction is channeled into a federal system where retired and disabled workers can receive a monthly cash benefit. Social security may also be claimed by the family members of deceased or disabled workers.
Medicare is a federally funded medical benefits program for those who are 65 and older. As an employer, you'll be responsible for calculating, withholding, and remitting social security and Medicare contributions to the federal government (from employee paychecks). The specific amounts deducted were previously outlined in this article. Social security and Medicare taxes are collectively referred to as FICA taxes.
3. State Income Tax Withholding
State income taxes are taxes that are withheld from employee wages and remitted to various state agencies. For example, the state department of revenue collects income taxes from employees working within a particular state, while the state department of labor typically collects unemployment taxes.
Each state has its own guidelines for how much should be withheld from each paycheck. Some states such as Texas, Nevada, Florida, and Alaska don't have an income tax. Therefore, you'll need to tailor your income tax withholdings to fit the specific requirements of your state.
4. Local Tax withholdings
Local taxes are amounts withheld to fund the activities of specific municipalities. For example, city councils, local schools, and state disability programs may operate via the income received from local taxes. The tax authority overseeing your municipality will determine the types of taxes you should withhold and in what amounts.
5. Wage Garnishments
Wage garnishment refers to a court order requiring an employee to pay off debt through their wages/income. The court may specify how much should be deducted from an employee's paycheck towards this end. In this way, the employee is obligated to pay off what they owe, and the money withheld is sent directly to the debtor.
As an employer, you'll be required to withhold any amounts specified by a court order. Most wage garnishments are designed to honor child support payments, unpaid taxes, student loans, and consumer debt.
Consequences of Payroll Tax Mistakes
For any small business, handling payroll taxes correctly is one of the most important tasks. This is because mistakes made during payroll could have significant consequences. Indeed, making one small error early on is like building a home with a weak foundation it could all come crumbling down.
Here are some consequences of making payroll tax mistakes:
Why You Need a Professional Payroll Tax Service
The consequences of mishandling payroll taxes are significant. This is why you need a reputable team that can help you streamline your payroll workflows without spending a fortune. With the help of our experienced Enrolled Agent (EA), Ken Hrin, by your side, you'll receive the necessary expertise to handle employee taxes, make the correct deductions at the right time, and address any arising issues.
Like most professional tax and accounting firms, we have optimized our workflows to process your payroll taxes more precisely and efficiently. We use a combination of software, expertise, and highly qualified staff to ensure that your business is on top of its payroll tax duties.
Turning Your Payroll Obligations into Something More Positive
Ready to turn payday from a nightmare into an experience that you can look forward to? Contact Greentree Accounting & Tax Services for professional payroll tax services today!