Employment Taxes

Small business owners have a lot on their plate. It’s not just hiring and marketing. You must also withhold and deposit employment taxes. These withholdings range from income to unemployment taxes. You must pay them to federal and state tax authorities. If you don’t, you could have tax problems that can result in fines or criminal charges.

Employment taxes are complex. There are federal, state, and local taxes you need to understand. Talking to a tax attorney in your area is a good idea. They can give you legal help with the employment taxes your business must pay.

What Are Employment Taxes?

Employment taxes are taxes that business owners and employees must pay. The federal and state governments have employment taxes. You may also have to pay employment taxes to your local government. You must withhold and pay them to the Internal Revenue Service (IRS) or state.

The Federal Insurance Contributions Act (FICA) taxes are the primary federal employment taxes. FICA includes the Social Security and Medicare taxes. These are sometimes called payroll taxes. Businesses pay part of this tax. The other part comes from the employee’s wages. As a business owner, you’re responsible for withholding the employee’s part of the tax.

Self-employment tax is the Medicare and Social Security tax self-employed people must pay. The IRS considers you self-employed if you’re one of the following:

• Sole proprietor
• Freelancer
• Independent contractor

You don’t withhold self-employment taxes from your paycheck. Instead, you report and pay them on your personal income tax return.

There’s also a federal unemployment tax you’re responsible for. State taxes you must pay include workers’ compensation and state unemployment taxes. The employer pays these taxes. The employee doesn’t pay any part of these.

You must withhold federal income tax from your employees’ paychecks. Most states also require the employer to withhold income taxes.

What Happens if I Don’t Pay My Business’s Employment Taxes?

You must deposit and report the taxes you withhold from your employees. You also must report employee compensation, including wages and tips. The IRS enforces federal tax laws. That includes collecting tax payments, performing audits, and imposing penalties for non-payment. States also have agencies responsible for collecting taxes and enforcing state tax laws.

The IRS and state agencies can penalize you if you don’t report and deposit your employment taxes on time. The government can levy a fine for late payment. Fines generally range from two to 15% of the amount owed. The government could hold you personally liable for not paying the taxes.

The government can put a lien on your property. Tax liens can hurt your credit and make it hard for your business to operate. You could also face criminal charges in egregious cases. For example, if you use the withheld funds for personal use.

When Do I Need a Lawyer’s Help?

Legal representation can help you comply with federal and state tax laws. Unpaid employment taxes are a significant problem. The government is emphasizing tax enforcement. Employment tax issues can cost you a lot in fines and possibly result in criminal charges.

Contacting a lawyer is a good idea if you need tax assistance or have a tax dispute. A payroll tax lawyer or employment tax lawyer can represent you in tax court. They can also give you other legal services and help you meet your tax obligations.