What are Payroll Taxes?

Most of us have heard the term “payroll taxes” before. What you might not know, however, is what, exactly, payroll taxes are.   

To put it simply, payroll taxes are funds that are required to deducted from your pay. These taxes apply to the first $127,000 of your income as of 2017.

The good news is that you’re not all on your own when it comes to payroll taxes, at least not if you work for someone else. When this is the case, your employer will take care of some of these taxes for you. If you are self-employed, though, all of the burden does ultimately fall on you.

For those who work for others, payroll taxes that are withheld are made up of things like state income taxes, federal income taxes, Social Security taxes, and Medicare taxes, also known as FICA taxes.

Whether you fall into the self-employed or traditionally employed category, it can be helpful to talk with a tax professional if you’re having trouble understanding payroll taxes. These professionals can better explain them to you and help to ensure that you’re paying everything you owe to avoid trouble later on down the line.

The Good News

While payroll taxes and having to pay them isn’t very fun, it’s really not as bad as it seems.

Without payroll taxes being deducted from your checks on a regular basis, you’d find yourself making a huge payment come tax time each year.

Plus, if you end up paying too much in payroll taxes or in any taxes for that matter, you’ll get a nice refund from the IRS come tax time.

At the end of the day, payroll taxes are just a part of how our tax system works, so, while they may not be your favorite thing, they are a necessary and inescapable part of life for Americans who work.

The Basics of Payroll Taxes

If you own a business or are thinking about starting a business, you have probably heard the term “payroll taxes” getting tossed around a lot.

This term refers to the taxes that you, as an employer, will be legally obligated to withhold from your employees for income taxes and FICA taxes.

Your job, as an employer, is to collect all of these required taxes and, then, to pay them to the IRS and report on them by filing the appropriate reports.

All of this can seem a bit harrowing, especially when you’re just starting out, but, don’t worry! It gets easier to understand, especially if you have a qualified accountant on your side.

Getting Started

If you are truly “new to the game” when it comes to having and taxing employees, then you should know that your first step is to register with the IRS in order to get a legal employer identification number. You also have to register with your state.

Once you have done these important things, it’s just a matter of knowing and understanding what is required from you in terms of payroll taxes and then following the rules perfectly.  

Your Job

As an employer who withholds taxes, you will have several responsibilities on your plate. These include, to name a few:

l  Making sure all of your employees turn in the right tax documents when they are hired and at other times throughout the year

l  Filing payroll tax reports by the appropriate deadlines

l  Withholding payroll taxes from employee checks

l  Paying those same payroll taxes to the IRS

l  Calculating payroll tax deductions and reporting them appropriately

If all of that seems like too much to manage on top of running a successful business, know that you are not alone.

A great many businesses turn to tax professionals for these matters. If you think you should be one of them or even if you just have questions or concerns about filing payroll taxes, don’t hesitate to contact the friendly professionals at Lewis CPA for help and guidance.