Payroll constitutes an integral part of every company’s operation. While conducting payroll function one must ensure the following: 

  • Applicable federal, state, and local payroll taxes get paid to appropriate agencies 
  • Accurate reporting of income, withholding tax, the amount spent on behalf of independent contractors and employees, etc 
  • Maintenance of necessary payroll documents and tax files 

Complying with these regulations timely and accurately enables businesses to avoid trouble and penalties by the government. If you do not have the time to take care of the payroll function efficiently you can always hire an profecient payroll service providers. Doing so will enable you to be relax about payroll compliance.  

 

The payroll requirements in the United States begin at the stage when you are hiring an employee. Firms need to get a federal employer identification number from the Internal Revenue Services (IRS). State and local tax numbers may also be necessary if applicable. The firms should assign these numbers to correspondence, deposits, returns, and other documents. Additionally, the taxation authorities may provide information about specific payroll obligations and tax forms to deposit and file returns.  

 

The federal tax reporting and depositing obligations are separate, even for the same liability. The deposit rules vary for Income, FICA (social security taxes), and FUTA (federal unemployment taxes). Since the filing and due dates are numerous and confusing for firms, the IRS offers a free, downloadable electronic calendar with the due dates on its website. It also includes an electronic reminder system.  

 

Types of taxes under the federal, state, and local laws include: 

Federal payroll taxes:  

  • Income Tax- Federal income tax is a withholding tax, meaning the employer withholds the appropriate amount from the employees’ income to deposit with the authorities. It is a pay-as-you-go-tax, and the amount gets withheld from every paycheck in the period. The withholding responsibility lies with the employer. This tax rate is available on the IRS website in the withholding table published as part of Publication 15 – The employer’s tax guide.  
  • Federal Insurance Contribution Act taxes (FICA)- It includes Medicare and social security taxes with annually revised rates. It is a shared tax, meaning the taxes are split evenly between the employer and the employee. The employers’ responsibility is to withhold the amount from the employee’s paycheck and deposit its share to the authorities.  
  • Federal Unemployment Tax (FUTA)- When employees leave the company involuntarily (forced to go), they get funds from the federal unemployment program to sustain themselves until they get a new job. It is a 100% employer’s responsibility to pay according to the given rates.  

 

State payroll taxes: 

  • State Income Tax– Its provisions are similar to federal income tax. However, the payroll service providers and employers in Alaska, Florida, Nevada, South Dakota, Texas, Wyoming, and Washington do not withhold this tax from the employees’ paycheck.   
  • State Unemployment Taxes (SUTA): This tax works with the federal unemployment taxes. When the businesses register themselves, the state tax authorities determine and provide the rates. In most states, SUTA is the employers’ responsibility. However, in Alaska, New Jersey, and Pennsylvania, employers and employees share the burden and contribute to these taxes.  

 

Local payroll taxes: These can include local income, transit, municipality, school board, etc. Paying these taxes varies based on tax authority and tax type.  

You can remit the federal tax to the IRS or get it done by your payroll service provider. The relevant tax authorities of states receive state payroll taxes. For example, the department of revenue receives state income tax, whereas unemployment taxes go to the department of labor. Appropriate local authorities receive local taxes based on the tax type. An easiest yet most effective way is to get an outsourced accounting services provider who can tackle your overall accounting along with the payroll. Doing this will help you stay compliant and be on the tip of your toe with your accounting process.