When are payroll tax liabilities due when processing payroll for the first time?
Many understand payroll is one of the most substantial expenses. Many business owners understand they will have to pay taxes, but many fail to realize that tax liabilities begin immediately with the first payment to an employee regardless of the size of your business. Payroll taxes accrue or accumulate starting with the first payroll.
When you decided the amount of payment to an employee, you will also have to match the FICA payments at 15.4% for each employee and including your owners pay. What does that mean for the small business owner? Having employees are great but remember you need to save the matching portion from being submitted with the employees withholding on your federal schedule. The IRS determines your federal schedule.
Also, you can not treat an employee as a contractor to avoid taxes. Determine if you have contractors or employees, I have linked a related blog to help you with this topic. If you have a contractor, you process their payments without withholding taxes. The contractor is responsible for submitting their taxes.
Determine your cost to hire an employee or to hire a business owner. An independent contractor is a small business owner. Although you may not have a formal business structure, you are a business owner and what the tax authorities call sole proprietors. Although you may not withhold payroll taxes for yourself, you must process payroll for your employees. You may include yourself on that payroll as well to help save your self-employment taxes however you will not receive a W2 at the end of the year. Your employees will receive a W2 regardless of your business structure. You will also need an EIN employer identification number for reporting and doing business. Again sole proprietors can have employment identification numbers, and this number is much better to use in business than giving out your social security number.
New to business or new to payroll? Let’s talk: https://bpaccountingsolutions.com/ask-the-accountant/b-p-knowledge-base
Author: Y. Michelle Coard, B.A.S, A.A.S, President and Profit Strategist
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