Filing your taxes on time is one of the major responsibilities of every aware citizen of a nation. But since it requires the careful management of your money, you must have a good idea about important terms like IRS payroll tax, IRS tax debt relief, employer payroll taxes, etc.
So, before we explain more about these, let us first discuss what really are employment taxes and how can you pay your self-employment tax with ease.
What Are Employment Taxes?
Every business owner and trade employer who provides a payment to their employees for performing certain services must pay the employment taxes to the IRS. It involves submitting a record of how much amount of money you are paying for every employee and includes:
- Income tax withholding
- Social security tax
- Medicare tax
- Additional Medicare tax (if any)
These taxes include reporting not only the major salary of every employee but also any kind of additional tips or extra compensation (if provided). You must fill out Form 941 quarterly every year to initiate the filing of such taxes.
Due dates of quarterly filed forms:
- April 30
- July 31
- October 31
- January 31
Employer Payroll Taxes
If you are an employer, then the sum of money which you must pay as your employer payroll taxes or IRS payroll tax depends on the total number of employees that you have hired along with their individual salaries.
Employer payroll taxes include:
- Social Security Tax: Every employer and employee must pay a social security tax which is 6.2% of his/her wage in the case of an employee. As for the employer, he/she must pay 6.2% of every employee’s salary.
- Medicare Tax: Medicare tax also applies to both employer and employee. It is 1.45% of the employee’s salary for both.
- Federal Unemployment Tax: Federal unemployment tax is only applicable to the employer. As soon as the employer pays $7000 to every employee, he is responsible for paying a tax of 6% of it every year.
- State Unemployment Tax: The state unemployment tax (SUTA) applies only to the employer in most American States and is different for every state. However, in Alaska, Pennsylvania, and New Jersey both employer and employee must pay it.
Who is eligible to pay the self-employment tax?
You are considered to be self-employed if:
- You work as an independent contractor
- You are the owner of an unincorporated business
- You are working as a business partner for any organization that carries out trade.
- You are a personal business owner. It includes people doing a part-time business individually and those who are hired as gig workers.
If you come under any of the above-given categories and your total annual profit is more than $400, then you must pay your self-employment tax. It involves a Medicare tax (2.9%) and social security tax (12.4%) only. This tax is filed Annually and you must make the payment every 4 months.
Forms that you need to file if you are self-employed:
- Form 1040
- Schedule 1
- Schedule 2
- Schedule C
- Schedule SE
- Form 4562
IRS Tax Debt Relief
If you are struggling to pay your taxes and if paying your tax can land you up in any financial hardship, then IRS also provides IRS tax debt relief through the medium of an Offer-in-Compromise agreement. But this offer is not eligible for everyone.
Likewise, you can only file a request for an offer in compromise if:
- You have already filed all of your tax returns.
- For the employers, they must have no dues regarding their Federal tax payments for the current as well as the last two quarters.
- You should not be on the verge of bankruptcy during the process.
- If you are applying for an OIC for the present year, you must be able to provide a valid extension for the present year’s returns.
Once you have completed the above-given eligibility criteria, you can proceed to take the advantage of IRS tax debt relief by going through the instructions given on Form 656-B.
Reporting And Depositing IRS Payroll Tax
It is a must for every employer to timely report and deposit their IRS payroll tax.
You can report the taxes by filing out the following forms:
- Form 941: A generalized form that every employer who retains the federal income taxes, Medicare taxes, and social security taxes must file in each quarter. If you provide any kind of extra unemployment benefits or hold back on sick pay, then also you must file this form.
- Form 943: For agricultural employers
- Form 944: This form must only be filed by people who have specifically received written notification regarding the form 944 program.
- Form 945: For reporting backup withholding
- Form 940: It is for reporting the federal unemployment taxes or FUTA taxes. There is no employee contribution during the filing of these taxes.
There are two ways to file these forms. The first is by filing them on paper and the second is via an e-file.
You can deposit your taxes either monthly or semi-weekly. There are different publications that you must review according to the form that you have filed to know what kind of deposit schedule you should be following. These include:
- Publication 15: For form 941, form 944 and form 945
- Publication 51: For form 943
During the quarter in which your pending tax crosses the limit of $500, you must deposit the FUTA Tax before the month ends. And if you are not able to pay it before the end of the month, then you must pay it before the quarter ends.
Before wrapping up, you need to know that IRS makes it mandatory for you to use the electronic fund’s transfer system to deposit all kinds of Federal taxes. Besides, failing to pay your taxes on time will make you eligible for a penalty of as much as 15 %.
Q1. How many days do you have to deposit payroll taxes?
Ans. If you deposit your taxes monthly, then you must deposit them on the 15th day of the next month. For example, January tax must be paid on the 15th of February.
Q2. Are employment taxes the same as payroll taxes?
Ans. Both employment taxes and payroll taxes are paid by the employers directly to the IRS but there is only a little difference in how these terms are used.
Q3. How much payroll tax do I pay?
Ans. The combined rates (of both employer and employee) for social security and medicare are 12.4% and 2.9% respectively. Therefore, the total FICA rate for tax is 15.3% of the employee’s salary.
Q4. Under what situations can I file the offer in compromise form?
Ans. It depends on your particular circumstances like your ability to pay the taxes, income, expenses, and asset equity.