If you are starting a business in which you will have even one employee, it is very important that you educate yourself immediately on your legal responsibilities pertaining to the withholding, reporting, and payment of payroll taxes. In regards to payroll taxes, not being in compliance with the law can quickly result in steep financial penalties for your company. Below is a listing of items with which all employers must comply.
- Employers are required to withhold the appropriate taxes from each employee paycheck. This includes federal, state, and local income taxes, as well as the employee’s percentage of Medicare and Social Security taxes, which are also known as Federal Insurance Contributions Act (FICA) taxes. Your employee will designate how much income tax should be withheld, whereas the FICA taxes are a percentage of the employee’s gross pay.
- Employers are legally required to set aside the FICA taxes they collect from each employee, as well as the employer percentage of these taxes for each person. Employers also must set aside the appropriate amount of money for employer liabilities for both unemployment and worker’s compensation claims.
- Employers are responsible for making sure that both employer and employee taxes are sent to the appropriate collection agencies on time. The most common example of this would be paying federal income tax and FICA withholdings to the Internal Revenue Service (IRS).
- Employers are required to report their tax liabilities to employees and to specified agencies. They are also required to provide financial reports to federal, state, and local agencies. One example is reporting newly hired employees within a certain timeframe.