If you own a business and pay employees any kind of compensation, you are required to pay federal payroll taxes.
You must electronically deposit federal income tax withheld, and both the employer and employee social security and Medicare taxes. If you fail to make a timely deposit, you may be subject to a failure-to-deposit penalty of up to 15 percent.
The intricacies of deposit due dates, reporting, forms, unemployment tax and withholding are many. Avoid getting hit with tax penalties from the IRS — know the annual due dates and ensure you pay on time.
Stay diligent with your tax responsibilities
There are a few areas of payroll tax requirements that small business owners should research and acknowledge. If one of these areas is confusing to you, talk with your tax advisor about the topic.
- Electronic filing of federal tax deposits
- Income and FICA tax deposit due dates
- FUTA (federal unemployment) tax deposit rules
- Federal payroll return requirements
- Providing Form W-2s and Form 1099s to workers
- Avoiding penalties and maintaining payroll tax records
Payroll tax penalties could be severe
Part of the responsibilities of being a business owner include obligations for payroll tax.
In fact, there are both criminal and civil penalties for (1) failing to file payroll tax returns on time or (2) to deposit taxes you owe on time.
One of the biggest tax liabilities is called the 100% penalty. You can be held personally liable for all income and FICA taxes that you willfully either fail to withhold from your employees’ wages or fail to pay to the IRS and your state tax agencies.
Another common liability is from Form W-2. If you fail to prepare a Form W-2 for your employees, or if you willfully furnish incorrect ones, you will be subject to a penalty, per each statement that should have been sent or that was incorrectly prepared.