How Do I Do Payroll Tax Withholdings for My Business?Gwinnett Christian CPA Firm Advises on IRS and Georgia Unemployment Tax Issues
"Payroll tax returns and their attendant issues are the bane of many business owners both big and small. Tax law at federal, state and local levels often leaves an entrepreneur feeling both dazed and confused. There is no greater area of need for tax simplification than in the area of payroll tax issues. Payroll tax returns and payments are due to the varying regulatory agencies at differing times, unique and special forms and often what appears to be conflicting reporting styles and forms. Unfortunately, this is just the tip of the confusion to which you will help find clarification below.
— Gwinnett CPA, John Dillard CPA
Federal and state withholding (depending upon and varying by state)
Employers are required to submit to their employees a withholding form/certificate, on which the employee documents and confirms their filing status and their number of exemptions. Employers then are required to use this information to determine the statutorily withholding based upon withholding tables required by the IRS and varying states. The withholding certificate for the IRS and Georgia are a W-4 and G-4 form respectively. It is the employees responsibility to complete these forms and then for the employer to withhold these amounts as directed. All withholding taxes are taken out of an employee’s check and then remitted over to the respective taking authority. In this capacity, an employer is required to act in a fiduciary capacity in the withholding and payment of these monies.
Unemployment Insurance/Department of Labor
Both the IRS and the state of Georgia assess against employers an unemployment tax. This tax is paid exclusively by the company, and there are no required withholding or additional taxes being paid by the employee. Both the IRS and Georgia limit the amount of taxes a company will pay on any given employee to a maximum salary amount per year. These monies/taxes are due on the first wages paid a particular employee in any given calendar year. While the IRS assessment rate/percentage is statutory the rate to Georgia fluctuates based upon an individual companies claims experience.
FICA insurance is taken out of an employee’s paycheck and then is matched by the employer. Like withholdings, FICA taxes taken out of an employees paycheck are treated as fiduciary monies and are required to be submitted over to the IRS with rigidly defined dates, dorms and reporting format and method of payment. FICA insurance withholdings are calculated based on a prescribed statutory rate and the maximum amount of salary this is based upon is annually indexed for inflation. These monies are given over to the Social Security Administration for monthly periodic payments to those who qualify when they retire or become disabled.
Medicare Insurance also is an amount an employee is required to be withheld out of their salary and is in turn matched by their employer. Medicare taxes, FICA and federal withholding are all reported and paid concurrently. However, unlike FICA taxes, which are only assessed up to a specified annual amount, Medicare taxes are assessed on all of one’s earned income (W-2 wages) regardless of the amount. Medicare monies are then used to pay for medical expenses for those who qualify.
Electronic Filing EFTPS
EFTPS is the procedure and process that the IRS specifies employers to use to report and pay all payroll taxes. EFTPS is where employers report and pay IRS monies electronically and via magnetic media.
Because of the many varying reporting formats, forms, methods and electronic reporting requirements, it is most advisable that all employers (regardless of size) utilize and retain a payroll service to handle all of its payroll needs. Payroll companies will not only process the actual paychecks themselves, but also prepare the required payroll reports and make the needed tax payments. This process is relatively seamless as most all payroll companies debit your account for the required payroll taxes at the time of payroll check processing. Payroll companies also have the ability to make electronic payments directly to an employee’s account thereby saving time and money.
At His CPA, P.C. we are committed to doing all we can to help ensure our client’s future success. One of the best ways we can do that is to refer vendors who can greatly assist in providing efficiencies and economies of sale. Call us today to see how we can help you.