What Are Payroll Taxes? Or the Devil is in the Details

First off, for the less technical way to define payroll taxes, let me just say, they are the Federal and State government's equivalent of a monthly gift that causes more than cramps. For the more technical minded, payroll taxes include social security, Medicare, Federal and State withholding. The combination of Medicare and social security is…

First off, for the less technical way to define payroll taxes, let me just say, they are the Federal and State government's equivalent of a monthly gift that causes more than cramps. For the more technical minded, payroll taxes include social security, Medicare, Federal and State withholding. The combination of Medicare and social security is also known as FICA. You will also be required to pay State and Federal Unemployment Taxes, known as SUTA and FUTA.

A small business can expect to pay about 14% of their employee's gross salary in payroll taxes. This is good to know when you are ready to hire and determine salaries and compensation for your employees. For example, let's say you're hiring an office manager and plan to pay this person $ 30,000.00 a year. This position will cost you in reality approximately $ 34,200.00 in salary and payroll taxes per year.

I recommend monthly payment of payroll taxes. A quarterly return will be necessary, but if the proper amounts have been paid each month, then there will not be an additional charge when the quarterly return is due. At that point, it is simply a matter of paperwork and meeting the tax reduction.

Always keep in mind, the government – be it Federal or State – want their money on time. Late payment of payroll or unemployment taxes is really frowned upon. Businesses can quickly get themselves into trouble and find themselves in the position of having penalises heaped on them. It's not a rabbit hole you want to go down.

Make sure you have your systems in place before you hire your first employee. Whether you intend to handle your payroll and the consequent taxes in your own office or outsource them to a firm that handles payroll, make sure you have your plan in place before you need it. It's always a plus to have someone that understands the tax side of payroll working for you in house or outsourced.

Payroll and payroll taxes do not have to be an issue. The simple key is planning and understanding. With both of those, you'll never have a problem.