Taxes. Sometimes we may grumble about them, but the reality is that they provide funds to keep America functioning. Businesses pay payroll taxes to provide essential services and support to American Citizens including Social Security and Medicare. As a small business owner, it is important to understand payroll taxes, including what needs to be paid and when so you can make sure that expensive penalties and legal difficulties are avoided.
What Are Payroll Taxes?
Various payroll taxes and other withholdings are taken out of an employee’s paycheck each pay period. They include an amount to cover federal income taxes based on an employee’s gross salary, marital status, and the allowances claimed on an employee’s W-4 form. A Social Security tax amount is withheld to contribute to the Social Security retirement account. A Medicare deduction is taken to pay for health care coverage for those eligible. Unemployment insurance pays benefits to those who lose their job through no fault of their own. State income tax and local taxes as applicable, are also withheld. Additional voluntary deductions are also handled in the payroll process including health and life insurance premiums, retirement plan contributions, employee stock purchases, and other financial benefits. Payroll can be complicated!
What Are the Employer’s Responsibilities for Payroll?
An employer has significant responsibilities for payroll to include properly following tax laws and paying correct payroll taxes. The responsibilities include:
- Calculating the proper amount of income tax and other withholdings.
- Paying the employer’s share of payroll taxes.
- Depositing tax dollars according to a set deposit schedule.
- Filing tax returns for payroll.
- Creating quarterly reports reflecting employee taxes withheld and deposited.
- Submitting annual reports to the Social Security Administration and to employees regarding employee tax payments.
Are There Penalties for Failing to File, Filing Late, or Making Filing Mistakes?
If employers fail to deposit their employment taxes with the IRS on time, they may be subject to a 2 to 15 percent penalty. If the taxes continue to remain unpaid and the IRS determines that the failure to pay is willful, the IRS can place a lien on the assets of the employer or even file criminal charges.
According to the National Federation of Independent Business (NFIB), the IRS penalizes nearly 1 in 3 businesses each year for mistakes including poor record keeping and inaccurate data, falling behind on payroll tax and missing filing deadlines, withholding errors, and misclassifying employees.
How To Manage Payroll and Payroll Taxes
There are several ways to manage employee payroll and payroll taxes. You can handle these functions yourself or by hiring a cadre of people to do the important payroll work including such employees as a payroll manager, payroll specialist, and payroll clerk. Or you can use a professional payroll service, a third-party payroll processing company to handle the functions of payroll processing, tax compliance, and other functions.
Choose an Outsource Payroll Service to Assist You
Choose Palmetto Payroll, South Carolina’s payroll partner. We serve over 300 businesses throughout South Carolina, with offices in Columbia and Charleston. We offer expert payroll, tax filing, tax depositing, Human Resource services, timekeeping, and management reporting. We pride ourselves on superb customer service and efficiency, using the latest technology.