It’s hard enough to implement year-round tax strategy, prepare, and file your business taxes... but it's extra difficult when you’re not sure which taxes you should be paying.
(Unemployment taxes? Social Security taxes? Payroll and income taxes? And if they have to be paid, are you responsible - or your employees?)
CSI Accounting & Payroll has worked with small business taxes for more than 50 years (and payroll taxes for over a decade), so we know a thing or two about:
- The different types of taxes.
- Who’s responsible to pay them.
Do Small Business Owners Pay Payroll Taxes?
Payroll taxes require work on your behalf (as the employer)... unless you work with a payroll service! This can be a big relief for small business owners who are having trouble keeping up with their payroll tax responsibilities. When we talk about payroll taxes, we’re mostly referring to:
- FICA taxes (Social Security and Medicare).
- State and federal income tax withholding.
- State and federal unemployment taxes.
FICA (Social Security and Medicare)
As an employer, you (and your employees) are responsible for Social Security and Medicare taxes. See the current Social Security and Medicare tax rates here.
Employees pay into these funds with the expectation that they’ll get the money back when they retire. Oftentimes, the amount paid is an employer match, but sole proprietors are responsible for both portions of this tax.
Your role is to withhold the amount from your employees’ paychecks and deposit the correct amount by the deadline. You also need to make sure your employees get credit for their withholding tax.
State and Federal Income Tax Withholding
You're required to give your employees an opportunity to set aside money for their individual federal and state income taxes. You don't pay this portion of payroll taxes; the amounts are withheld from employees’ pay and are your responsibility to remit as tax payments to the IRS and any of your required withholding states. The amounts are calculated using Forms W-4.
In 2000, there was a significant change in the federal Form W-4, which now uses an individual’s tax filing status as a guideline instead of the traditional form that used their marital status. That means in many states, you now need to have employees fill out a separate W-4 for their withholding state. (Some states don’t have withholding tax, so you'd only withhold federal income taxes in those cases.)
State and Federal Unemployment
Barring a few states (Alaska, New Jersey, & Pennsylvania), this is paid by the employer. There's a cap on employee income that you need to pay this on, though. There's a federal unemployment rate for a certain amount of wages paid to each employee per year, and state unemployment taxes vary by state. See the current Minnesota state base unemployment rate here.
Every year, the rate changes because the unemployment office pays out different amounts, much like insurance. You pay against the claims on your account. The unemployment office looks at how much you’ve paid in four years versus how much they’ve paid out against your account, and this is how they generate the tax rate.
Minnesota is one of the few states that doesn’t require certain business owners to pay unemployment taxes by default. However, unless you qualify for an exemption, if you have any W-2 employees that are not at least 25 percent owner, you are required to pay state unemployment taxes on any covered wages paid up to the state limit.
Hire a Payroll Specialist to Manage Payroll Taxes
There can be quite a bit that goes into paying the appropriate business taxes! Now that you know the basics of who’s responsible for payroll taxes, you’ll either feel more prepared than ever to manage your business taxes, or you’ll be ready to start exploring payroll services.
Payroll services take over a lot of responsibilities that go into payroll. This leaves you feeling more confident in letting go of that aspect of your business and instead focusing on your business’s profitability and growth.
If you want to have a discussion about whether CSI Accounting & Payroll can be a good fit for you, click the button below for a free consultation.
Not ready for a conversation yet? Learn about the cost of a payroll service first!
