If you plan to start a business with employees or you are currently operating a business with employees, you need to know your tax responsibilities as an employer. This section briefly discusses a variety of topics that businesses who have employees and/or employers should know. The list should not be construed as all-inclusive. Other steps may be appropriate for your specific type of business.
Employer Identification Number (EIN)
An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity. Generally, businesses need an EIN. You may apply for an EIN in various ways, and now you may apply online. This is a free service offered by the Internal Revenue Service. You must check with your state to make sure you need a state number or charter.
Which Workers Are Considered Employees?
A general rule is that anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed. Before you can know how to treat payments that you make for services, you must first know the business relationship that exists between you and the person performing the services.
Hiring Employees
This section provides information about finding, hiring, and training employees, recording their social security numbers, determining wage withholding, and determining whether those assisting you with routine housework are household employees.
Employment Taxes
If you have employees, you are responsible for Federal Income Tax Withholding, Social Security and Medicare taxes and Federal Unemployment Tax Act (FUTA), unless specifically excepted.
Depositing Taxes
In general, you must deposit income tax withheld and both the employer and employee social security and Medicare taxes (minus any advance EIC payments). You can make your deposits either electronically, using the Electronic Federal Tax Payment System (EFTPS), or by taking your deposit and Form 8109-B, Federal Tax Deposit Coupon to an authorized financial institution or a Federal Reserve bank serving your area. However, some taxpayers are required to deposit using the Electronic Federal Tax Payment System (EFTPS).
Outsourcing Payroll Duties
Many employers outsource some of their payroll and related tax duties to third-party payroll service providers. They can help assure filing deadlines and deposit requirements are met and greatly streamline business operations. But remember, employers are ultimately responsible for the payment of income tax withheld and both the employer and employee portions of social security and Medicare taxes.
Recordkeeping for Employers
Keep all records of employment taxes for at least four years. Also, keep good records for your business to help you monitor the progress of your business, prepare your financial statements, identify source of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns.
Retirement Plans
The advantages of a retirement plan are numerous. There are economic, business and tax advantages for your business, for your employees and for you. A retirement plan may give you an important competitive edge in attracting and keeping the best employees - and help you plan for your own retirement years.
References/Related Topics
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