Tax Responsibilities of Small Business Owners

Small business owners who have employees also have federal, state, and local tax responsibilities. These responsibilities range from withholding taxes (federal, state and local) from employee’s wages, depositing taxes to an authorized financial institution, and preparing and filing a W-2 form for each employee.

To pay the federal employment taxes, you’ll need to:

• Withhold federal income tax from each employee’s wages
• Withhold part of the Social Security and Medicare taxes from each employee’s wages
• Pay a matching amount on the Social Security and Medicare taxes for each employee
• Pay federal unemployment tax for each employee

Once you’ve withheld and paid the proper amount of taxes, you can make deposits electronically, by mail, or through delivery of a check or money order to a federally authorized tax-depository financial institution. Even if you’ve requested a filing extension, you still need to deposit your tax payments on tax day (April 15th).

Whether or not your business’s fiscal year is the same as the regular calendar year, you need to complete a Form W-2 for each employee after the end of the calendar year and give the employee their copy by Feb 1, 2010. You’ll have to send a copy of the W-2 to the Social Security Administration, the IRS, and any local and state governments that require it. You can summarize the W-2 with a Form W-3. The W-2 Wage and Tax Statement form is used to report wages, tips and other compensation paid to employees, along with withheld taxes and any tax credits.

As an employer, you can receive some tax credits on wages for hiring certain employees (ex: American Indians). Check with the IRS website to see if you qualify for these tax credits.

For more information about business taxes, go to www.irs.gov.

Laws on this topic may vary from state to state. This content is not meant to provide you with complete information and it is not intended to be legal or tax advice. It is recommended that you consult with your own attorney, accountant or other advisor regarding your specific situation.