Payroll Taxes

Remember when you got your first paycheck? For most of us, it was our first step into adulthood. Then you looked closer at your hard-won prize. Puzzled, you asked the same question millions of dumbfounded Americans ask when gazing at their paystub, “Who is FICA and why are they taking my money?” Not only was that paycheck your first taste of independence, but it was also your first hard life lesson. Taxes will creep into almost all aspects of your life. Your paycheck is no exception. Payroll taxes can be more frustrating for the small business owner. In that case, it’s your responsibility to withhold the taxes. If you don’t, you could face serious tax issues.

This article explains payroll taxes. All levels of government — federal, state, and local —small business owners have varying payroll tax rules they must follow. Talking to a payroll tax attorney in your area is a good idea. They can help ensure you follow the tax laws and help you avoid tax problems.

What Are Payroll Taxes?

Payroll taxes are taxes employers and employees pay on salary, wages, and tips. These taxes include federal, state, and local government taxes. They are in addition to federal and state income tax withholding. Federal government taxes include Social Security and Medicare taxes. Together, these are the Federal Insurance Contributions Act (FICA) taxes.

Besides the Medicare and Social Security tax, you must withhold unemployment taxes from employee wages. The Federal Unemployment Tax (FUTA) is the federal government’s unemployment tax. Most states and some local governments also impose an unemployment tax.

The employer and employee each pay part of the tax. It’s up to you to withhold these taxes from employee paychecks. You must deposit the withheld funds with your part of the taxes with the government. Independent contractors aren’t subject to this withholding. Instead, they pay their payroll taxes as part of the self-employment tax. They pay the self-employment tax with their federal income tax return.

What Happens if I Don’t Pay My Payroll Taxes?

The Internal Revenue Service (IRS) enforces U.S. tax laws. If you don’t pay payroll taxes, the IRS can impose penalties, levies, and tax liens to recover the unpaid payroll taxes. In extreme cases, it can also pursue criminal charges. Penalties range from a late fee to the trust fund recovery penalty for not paying them at all. You may also have to pay interest on back taxes.

The IRS can put a tax lien on your property if you have an outstanding payroll tax debt. You could face criminal charges in egregious cases. For example, if you use the taxes you withheld for personal expenses.

When Do I Need a Lawyer’s Help?

Small business owners have plenty to worry about. From finding customers to hiring good employees, it can take a lot of work to stay on top of everything. Finding a good tax professional can relieve some of the burden. Two types of tax professionals can help you. You’ll need both at some point. But they specialize in different kinds of tax matters.

The first is the tax lawyer. Having an experienced tax attorney can be a critical part of your success. They can help you understand tax laws and avoid a negative tax situation. A tax lawyer is valuable if you’re facing an issue with the IRS or a state or local tax authority. They can also give you tax planning advice to help you cut your tax liability.

The second is a certified public accountant (CPA). A CPA can help keep your financial records organized. They can also file necessary tax forms and help with tax planning.

You can find yourself with payroll tax problems. Contacting a payroll tax lawyer is a good idea if you need tax help or have a tax dispute. A lawyer can represent you in tax court. They can also give you advice about meeting your tax obligations.