PLANS. Topic: 381 Small Business and Business Taxes Requirements

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by Vincent C. Ragland

If you own a business with employees, you most likely owe some form of employment taxes. As an employer, you have a responsibility to withhold and pay state and federal taxes. Employment taxes are basically broken down into income tax, social security tax, Medicare taxes (FICA) and Federal unemployment taxes. Most businesses (with the exception of sole proprietorships with zero employees that do not pay any form of wage) are required to file for an Employer Identification Number (EIN). The government uses this number to identify your business and its tax ramifications. You can obtain tax form SS-4, Application for Employer Identification Number by visiting the IRS website at www.irs.gov, obtain the form at your local IRS office, or contact the IRS by phone and complete the application by phone. If ordering by phone, your EIN can be given to you within minutes, with the formal EIN document forwarded to you within two weeks.

Any employer transacting business and making payments of any compensation to an employee must manage some type of income tax. The types of taxes the business owes may be different, but taxes are due regardless. An example would be a business that hires and individual as an independent contractor as opposed to an employee. The business owner is not responsible for the independent contractors tax payment, but must file a tax form 1099-misc identifying the payment to the independent contractor. The employer also must obtain from the independent contractor formW-9, (Request for Taxpayer Identification Number and Certification). If the business owner does not identify the independent contractor by either a separate EIN or social security number, the IRS identifies the person paid as an employee, and the business must withhold income tax from their payment to the independent contractor in the form of backup withholding.

Employers are required to file a W-4 Employees Withholding Allowance Certificate for every individual it employs. Total taxes withheld are based upon the employees gross earnings along with personal information such as marital status, number of allowances claimed, exemption information and any additional tax the employee requests withheld.

Also, the business owner and employee must complete form I-9 Employment Eligibility Verification, and employers must keep this form at least three years after the date of hire, and/or one year after employment ends.

Any employee who performs a service subject to the control of an employer, is an employee at will, and is subject to pay income tax. The business owner is required to supply the employee with form W-2 Wage and Tax Statement, which shows total wages and other compensation paid, social security and Medicare taxes, tips, and amounts deducted for income, social security and Medicare taxes etc. Business owners must provide employees with this form no later than January 31st of year after the tax period year.

Tax requirements for the business owner:

*Federal and State Income Taxes

*Social Security Taxes

*Medicare (FICA) Taxes

*Federal Unemployment Taxes

Vincent C. Ragland is President and CEO of PLANS. PLANS can be reached at (312) 286-6886 and by Email at Vncnt599@sbcglobal.net.

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