Types of Business Taxes

While everyone must pay taxes on income through regular payments of estimated tax during the year, your business structure determines what other taxes you must pay, and how you pay them. The four major types of business taxes are income tax, self-employment tax, employment tax and excise tax.

Income tax
The government uses income tax to bill individuals for their earnings (from wages or investments), in proportion to their level of net income. All businesses except partnerships must file their income tax return annually (partnerships file an information return instead).

Throughout the year, the employer withholds money from an employee’s payroll, which goes to paying the income tax. If the income withheld from payroll is more than the amount the individual owes the government, then the government issues a refund. But if the income withheld from payroll is less than the amount owed, the individual must pay the IRS the difference.

Employees who don’t pay taxes through withholding (or who don’t pay enough) may have to pay extra estimated tax.

Self-Employment Tax
Self–employment tax, or SE tax, is a Social Security and Medicare tax used by individuals who work for themselves or own their own business to contribute to their social security coverage. Individuals can deduct half their SE tax to figure out their adjusted gross income, and they may be eligible to claim Earned Income Tax Credit.

You qualify for self employment if:

• You are the sole proprietor or independent contractor of a trade or business
• You are a member of a partnership that carries out a trade or business
• You are in business for yourself

You do not have to work full-time to be self-employed, nor does your trade or business have to make a profit, just so long as you have a profit motive.

You’ll have to file the Schedule SE form 1040 if you meet either of these criteria:

• your net earnings from self-employment were over $400
• you are a non-clergy member who works for a church/church-organization that elected an exemption from social security and Medicare taxes, and you received over $108.28 in wages.

Employment Taxes
Employers who have employees have certain tax responsibilities, which include:

• Social security and Medicare taxes
• Federal income tax withholding from employee wages
• Federal unemployment tax

Employers must deposit these taxes electronically using form 8109-B. They must also report Federal Income tax, Social security and Medicare on form 941, as well as an employer’s quarterly federal tax return. Employers must complete form W-2 wage and tax statement at the end of the year to report wages, tips and other employee compensation.

Excise Tax
You may have to pay excise tax if you do any of the following:

• Manufacture or sell certain products
• Operate certain kinds of businesses
• Use various kinds of equipment, facilities or products
• Receive payment for certain services

Forms for excise tax include:

• Form 720 quarterly federal excise tax return, which encompasses a few broad categories of taxes
• Form 2290 heavy highway vehicle use tax return
• Form 730 monthly tax return for wagers
• Form 11-C occupational tax and registration return for wagering

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.