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Small Business Employment Taxes: A Guide

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On behalf of John J. Pembroke & Associates LLC posted in blog on Friday, December 7, 2018.

Small Business Employment Taxes: A Guide

Taxes are complex. This is especially true if you’re a small business owner. Small business owners have to worry about their own taxes, as well as certain taxes on their employees.

Failure to properly handle employees’ payroll taxes can land business owners in some serious hot water. That’s why we’ve created the following guide – to help business owners deal with their employment tax responsibilities in a legally appropriate manner.

Small Business Employment Taxes: A Guide
Employee Taxes Small Businesses Must Withhold

On a federal level, there are three types of taxes that employers must withhold or pay for their employees. These taxes include income taxes, FICA taxes, and FUTA taxes. On a state level, there are withholding taxes for income, and SUTA taxes.

Income Taxes

As you know, income is taxed at varying rates depending upon how much money a person makes. It is your responsibility as an employer to withhold federal income taxes from each and every one of your employees’ paychecks.

To get an understanding as to how much you must withhold for each individual employee, you need to have your employees fill out W-4 forms for both the IRS and the state relevant to the employee. These forms will allow employees to inform you of any deductions or exemptions they might receive. After you’ve received these forms, you can withhold their taxes accordingly.

In the event that you don’t receive a W-4 form from one of your employees, you should withhold his or her taxes under the assumption that no deductions or exemptions exist, and that they are single and subject to the highest rates of withholding taxes

FICA Taxes

Employers are required to withhold both Medicare taxes and Social Security taxes for their employees. Together, these two taxes make up a tax known as FICA tax (Federal Insurance Contributions Act). Like income taxes, FICA taxes are withheld from each and every paycheck that you give to an employee.

There are two portions of the FICA tax that you’ll need to withhold… the employer portion and the employee portion. While the employee portion comes from your employee’s paycheck, the employer portion must be paid by you.

At the present time, each portion of the FICA tax equals 7.65% of annual income, totaling 15.3%. This means that you will withhold 7.65% of the payment on each of your employees’ weekly or bi-weekly paychecks for FICA tax.


It is also your responsibility, as a business owner, to pay FUTA (Federal Unemployment Tax) taxes and State Unemployment Taxes. These are not withheld from your employees’ paychecks. Only the business has to pay these taxes.

How Do You Report Employee Taxes?

What do you do with the taxes that you’ve withheld for your employees? If you file taxes annually, you’ll need to fill out Form 944. If you file quarterly, you’ll need to fill out Form 941. For FUTA taxes, you’ll need to fill out Form 940. There are also forms to file for each applicable state tax. And, some jurisdictions have local taxes, too.

When submitting payments, you can do so online, through the mail, or via money order. These payments are due in varying and sometimes complex dates. We recommend that businesses hire a payroll tax service that specializes in these taxes. Its far cheaper in the long run to pay such a service rather than pay penalties if mistakes are made.

Potential Employee Tax Penalties

Be warned: if you don’t withhold your employees’ taxes, you may be subject to penalties. In most cases, you will be penalized by having to pay all of the taxes that you didn’t withhold for your employees. This includes FICA, FUTA, SUTA and income taxes.

Utilize the Services of a Glenview Business Attorney

Do you need help managing your employment taxes? Are you interested in utilizing the services of a Glenview business attorney? The experts at John J. Pembroke & Associates has you covered.

Our team of seasoned attorneys has helped and continues to help a number of business owners with their tax responsibilities. Our team would love to help you as well.

Contact us today to schedule an appointment!

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