Employment Taxes and the Things You May Not Know!
Sandra is opening her first salon in North Carolina and is going to have 3 people that will rent booths and the other 5 people will be employees. She needs to organize her files and reports so that she can keep up with the regulations and pay the taxes on time. The first thing she needs is information on the requirements and reporting/payment dates.
Sandra will need to withhold the employee’s share of Social Security, Medicare as well as state and federal income taxes. In addition, she will also need to pay the employer’s portion of Social Security, Medicare and unemployment taxes.
Sandra is not responsible for keeping track of the revenue for the 3 people that will be renting booths. However, if she is allowing these individuals to run their receipts through her register, she will need documentation that they have also received their income. If she does not keep track of the money they have received, she could end up having to pay taxes on that money.
Sandra will maintain the records of the 5 employees, to include collecting a Form 4070, Monthly Tip Reporting from each of her hair stylists. Their tips will be included in their income and the appropriate taxes will be withheld.
One of Sandra’s employees, Rachel, has made $62,531 this past year. Sandra would be responsible for withholding the employee’s share of Medicare (1.45% = $906.70), Social Security (6.2% = $3,876.92), State and Federal income tax as calculated on Form W-4. If Rachel had made over $200,000, she would have also had to pay an additional 0.9% Medicare Tax. This is only for the employee, not the employer.
Sandra’s portion of the taxes would be the same percentages for Medicare and Social Security. She would also have to pay North Carolina state unemployment taxes (1% up to $23,500 = $235) and federal unemployment taxes (6% up to $7,000 = $420).
The IRS Form 941, Employer’s Quarterly Federal Tax Return, will be used to report and pay the withheld federal income tax, Medicare and social security. This must be filed on a quarterly basis and the deadlines are April 30, July 31, October 31 and January 31 of the following year.
IRS Form 940, Employer’s Annual Federal Unemployment Tax Return, is used on a quarterly basis for amounts over $500. The deadlines are the same as those for Form 941.
At the end of the year, Sandra will need to provide her employees with a W-2. She will also need to file a W-3 with the IRS along with Copy A of all the W-2s she gave her employees.
Payroll and the corresponding taxes can be somewhat confusing. If you need help, please contact us at firstname.lastname@example.org or 407-988-5647.
Categories: Tax Information