Employers are required by law to withhold employment taxes from their employees. The Employment taxes they are required to withhold are:
(1) Federal Income tax - The federal income tax is a "pay as you go tax." You must pay the tax as you earn or receive income during the year. For most employees this takes the form of income taxes withheld from their pay. Self-employed persons are also required to make estimated tax payments during the year. The pay as you go system was designed to ensure that taxpayers meet their tax obligations timely
(2) Social Security and Medicare Taxes - These taxes pay for benefits workers and their families receive under the Federal Insurance Contributions Act (FICA). Social security taxes pay for benefits under the old age, survivors, and disability insurance part of FICA. Medicare taxes pay for hospital benefits. Each employee contributes part of these taxes and the employer pays a matching amount. Self-employed taxpayers must also pay social security and Medicare taxes in the form of self-employment taxes. The programs funded by employment taxes provide essential benefits to many citizens. The importance of the programs will continue to grow as more citizens reach retirement age.
(3) Federal Unemployment (FUTA) Tax - The Federal Unemployment Tax Act (FUTA) tax, together with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs.
If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide .
If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide (click here) . These publications explain your tax responsibilities as an employer.
When hiring employees, have them fill out Form I-9 and Form W-4.
If your employees qualify for advanced payment of the earned income tax credit, they must give you a Form W-5 (click here) . Special rules apply for Family Employees to determine if wages are subject to employment taxes.
Ways to reach the IRS:
Business tax questions 1.800.829.4933
1040 Help line 1.800.829.1040
IRS Help line 1.800.829.4933
Employers must report income and employment taxes withheld from their employees on an Employer's Quarterly Federal Tax Return Form 941 (Rev. January 2006) -- Fill-in Form and deposit these taxes in full to an authorized bank or financial institution pursuant to Federal Tax Deposit Requirements.
Employers are also responsible for filing a FUTA ( Form 940 -- Fill-in Form click here ) return annually, and depositing those taxes.
Employers who do not comply with the employment tax laws may be subject to criminal and civil sanctions for willfully failing to pay employment taxes.
For a downloadable Checklist for Starting a Small Business (click here)
What is an EIN Number?
An Employer Identification Number (EIN) is a nine-digit number that IRS assigns in the following format: XX-XXXXXXX. The IRS uses the number to identify taxpayers that are required to file various business tax returns.
As a sole proprietor, you would need to obtain an identification number if either of the following apply:
(1) you pay wages to one or more employees, or (2) you file pension or excise tax returns. If these conditions do not apply, your social security number is your taxpayer identification number.
EMPLOYER ID NUMBERS (EIN)(click here) Form SS-4- An Employer Identification Number (EIN) is also known as a federal tax identification number, and is used to identify a business entity. (This is a printable Form.)
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