If you have employees, you will have to pay employment taxes – taxes that you withhold from your employees’ wages to pay local, state, and federal taxes.

The type of state and local taxes will vary depending on your city and state, Federal taxes include the following:

• Federal income tax withholding: Withholding acts as a prepayment of tax an employee will owe at the end of the year. A refund is issued if the withholding was greater than the tax owed. To figure how much to withhold from each wage payment, use the employee’s Form W-4 and the methods described in IRS Publication 15, Employers Tax Guide (www.irs.gov/publications/p15/index.html).

• Social Security and Medicare Taxes: These taxes are used to pay for benefits received under the Federal Insurance Contributions Act (FICA). The social security portion pays for old-age, survivors, and disability insurance and Medicare pays for the hospital insurance portion of FICA. You withhold ½ of these taxes from your employees’ income and then you must pay a matching amount.

• Federal Unemployment Tax (FUTA): This pays for unemployment compensation to workers who lose their jobs. This tax is paid separately from the other Federal taxes. It is paid directly by the employer.

The easiest way to deposit these taxes is through the U.S. Department of Treasury’s free tax payment system, Electronic Federal Tax Payment System (EFTPS). When using this system, you can pay your federal taxes via the Internet or phone 24/7. Visit http://www.irs.gov/efile/article/0,,id=98005,00.html for more information or to enroll.
WWW.SSA.GOV

Finally, at the end of the year, you must complete Form W-2, Wage and Tax Statement to report all monies paid to your employees, as well as taxes withheld. A copy of the form is given to the employee and to the Social Security Administration. You can prepare these W-2s at the SSA’s website (http://www.ssa.gov/bso/bsowelcome.htm).

Forms for Reporting Taxes

Withholding, Social Security and Medicare:

• Form 941, Employer’s Quarterly Federal Tax Return
• Form 943, Employer’s Annual Federal Tax Return for
Agriculture Employees (For use by farm employers)
• Form 944, Employer’s Annual Federal Tax Return

Unemployment:

Form 940, Employer’s Annual Federal Unemployment (FUTA)
Tax Return

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