Employment Taxes ? What Are They?

If you have employees, you are responsible for paying a variety of taxes at the federal, state, and local levels. You must also withhold certain taxes from the paychecks of your employees. So, what are employment taxes?

Employment taxes include the following.

1. Federal income tax withholding

2. Social Security and Medicare taxes

3. Federal unemployment tax (FUTA).

Federal Income Taxes/Social Security and Medicare Taxes

You generally must withhold federal income tax from wages paid to an employee. Form W-4 is used to determine the specific amount, although most payroll services or your accountant will do this for you.

Social security and Medicare taxes pay for benefits that workers and families receive under the Federal Insurance Contributions Act (FICA). Social security tax pays for benefits for the retired, survivors, and disability insurance distribution provisions of FICA. Medicare tax pays for benefits under the medical care provisions of FICA. As an employer, you must withhold a percentage of these taxes from employee and match the withholding amount.

In general, you must deposit these taxes by check or cash to an authorized financial institution, typically your bank. Check with your tax professional to make sure you are not required to use the Electronic Federal Tax Deposit System (EFTPS). Regardless of the payment method, you will then report them on Form 941, the Employer's Quarterly Federal Tax Return

Federal Unemployment Tax (FUTA)

FUTA is a combined federal and state program that provides unemployment compensation to the unemployed. As a business owner, you are solely responsible for paying this tax, to wit, nothing is withheld from the paychecks of your employees. FUTA is determined by using Form 940, but you are encouraged to use a tax professional to determine payment amounts.

Employment taxes can be frustrating for a small business owner. They are, unfortunately, a necessary evil as your business grows.

Richard Chapo is CEO of http://www.businesstaxrecovery.com - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review.

In The News:

Save money on taxes  INQUIRER.net
CommonWealth Magazine  CommonWealth magazine
The Star reopening, inks NSW tax deal  Yahoo Finance Australia
'Our worst tax': opt-in stamp duty in tax overhaul  The Australian Financial Review
ATO closes in on Israeli bank over tax fraud claims  The Australian Financial Review
States must drag PM to tax reform table  The Australian Financial Review

Tax Trap #1 -- Waiting to Incorporate: What A Difference A Date Can Make

NOTE: This is the first in a series of 5... Read More

Tax Time Tune Up

Excerpted from the new book, "How to Do Space Age... Read More

How to Reduce the Estate Tax Using the A-B Revocable Living Trust

In a past article I relayed the plight of the... Read More

SFR Substitute for Returns: IRS Action on Non-Filers

In the latest Star Wars episode, the evil empire executes... Read More

How to Donate Your Car to Charity and Get Tax Deduction

Donating your used car to charity is a win-win situation;... Read More

What You Need To Know About Taxes If You?re Getting Married

It may not be high on the list of wedding... Read More

Rearrange Your Affairs For Maximum Tax Savings

One way to maximize your business profits is by reducing... Read More

Rental Property Tax Deductions

Own residential rental properties? This article discusses how income from... Read More

Getting A Second Extension to File 2004 Taxes

Millions of people file tax return extensions every year. The... Read More

Need an Offshore Sales Office in a Tax Free Environment?

The 100 year old investment-banking firm of... Read More

IRS Reports Tax Gap of $300 Billion

The Internal Revenue Service is reporting that the difference between... Read More

Truly Bizarre Taxes: The Tax on Illegal Drugs

One can never underestimate the enthusiasm that politicians have for... Read More

How Likely Are You To Be Audited?

Statistics for IndividualsUnfortunately, the IRS increased its rate of auditing... Read More

Tax Trap #5 -- Ignoring The IRS (and the 5 best ways to contact them!)

We all love to criticize the IRS, don't we? And... Read More

2005 Ford Escape Hybrid Certified For Clean-Fuel Deduction

If you are environmentally conscious and purchase a 2005 Ford... Read More

Small Business Tax Issues for Self-Employed Individuals

The United States is a nation of entrepreneurs. There are... Read More

How To Set Up A Tax-Saving Bookkeeping System

One of the most important, but least understood or appreciated... Read More

Taxing Overseas Firms for SOX Compliance

The Sarbanes-Oxley Act, also called the Public Company Accounting Reform... Read More

Surprising Truths About Tax Preparers

Choosing the right tax preparer for your business is a... Read More

Tax Trap #2 -- Double Taxation: Isnt Once Enough?

Have you been thinking about incorporating your small business or... Read More

Alas! In E-Commerce Taxland

In trying to comply with tax laws for your e-business,... Read More

Requirements To Produce Tax Information (Whats Up With That?)

"What we've got here is a failure to communicate." ... Read More

About Income Taxes; Tidbits

1812The first attempt to impose an income tax on America... Read More

Back To School ? Educators Deduct School Expenses

As teachers and students head back to school following a... Read More

Small Business Tax Credit - Americans with Disabilities Act

Many small businesses complain when confronted with the expense of... Read More