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  • who-has-to-pay-self-employment-tax

    Do I Have to Pay Self-Employment Tax?

    posted by Mike Kappel
    Newest Article
  • What is social security tax?

    What is Social Security Tax?

    posted by Michele Bossart
    Recent Article
  • Do I Have to Pay Self-Employment Tax?

    Self-employment is part of the American dream for many. To do what you love and get paid for it can be incredibly rewarding if handled properly. However, one of the factors that needs to be considered is self-employment tax — which is a necessary evil when you are doing what you love!

    Benjamin Franklin, whose face graces the U.S. hundred-dollar bill, once said, “In this world nothing can be said to be certain, except death and taxes.” While taxes may be a certain part of doing business and working, you may not be so certain about how to properly account for those taxes if you are self-employed…

    What is Social Security Tax?

    Social security, officially called the Old-Age, Survivors, and Disability Insurance (OASDI), is a system designed to help support those who are no longer able to work due to old age. It also supports widows/widowers and those who are disabled. To fund social security payments, every employee, employer, and self-employed person in the U.S. is required to pay social security tax. This tax is automatically withheld from every paycheck issued by an employer. It’s the employer’s job to make certain that the tax is remitted to the appropriate agency at the correct time.

    By law, social security taxes can only be used to pay out social security benefits by the government and may not be used to fund any other purpose. This is to safeguard social security benefits for employees who have paid into the fund for future benefits.

    What is the Current Social Security Tax Rate?

    The standard social security tax is a flat rate of 12.4%. However, the employee is not responsible for paying the entire tax. Instead, they pay half of it (6.2%) and the employer is responsible for paying the other half (6.2%). This split ensures that employees don’t lose more than ten percent of their paycheck to one type of tax.

    Those who are self-employed, however, do have to pay the full 12.4%. This is because the IRS sees them as both employer and employee. The brunt of this burden can feel particularly heavy for those who are new to self-employment, and it’s the reason many suggest that those who work for themselves set aside 25 to 30% of all income to cover the higher tax rates that they may not be expecting.

    The Social Security Wage Base

    Note that only a certain amount of an employee’s earnings are subject to social security tax. There is a limit, or wage base, that is set by the government. This amount tends to increase every year. In 2014, only the first $117,000 an employee or self-employed person made was taxed for social security. In 2015, that amount increased to $118,500. You can find the social security wage base listed on the SSA website.

    How Can Employers Comply with Social Security Taxes?

    1. Get correct information from employee

    Small business owners will need to record each new employee’s name and social security number to ensure proper filing of taxes. Any employee who does not have a social security number will need to apply for one by completing Form SS-5. Nonresident aliens who are in the country will generally have social security taxes withheld on the wages you pay them also. There are exceptions to this general rule as listed on Publication 515.

    2. Calculate Social Security taxes

    You are required to withhold social security taxes, (as well as Medicare and income taxes ), from your employees’ wages and pay the employer’s share of these taxes. There are no withholding allowances (also known as deductions) for social security taxes. Typically social security (and Medicare) taxes are withheld from employee wages regardless of employee age, or if they are receiving social security benefits. However, there are some exceptions with types of wages such as employee expense reimbursements, which are not considered taxable.

    The amount of withholding is determined by multiplying the amount of wages by the employee tax rate (6.2% in 2015). Additionally, your employer contribution (6.2% in 2015) will need to be calculated. You will continue withholding social security taxes until the wage base for social security taxes is met for the year for each employee.

    Generally, it does not matter if a worker has had the maximum social security amount withheld from another employer. You will still continue to calculate the social security tax based on the wages paid by you. Also, it does not matter if the employee is part-time or a temporary worker. You can still figure the social security taxes the same way for part-time employees as you do for your full-time employees.

    3. Deposit and file Social Security payroll taxes

    Social security taxes (along with medicare and federal income taxes) must be deposited on regular basis. The most common deposit frequency is monthly, and is also the frequency assigned to new employers for the first calendar year of business. Employers with over $50,000 in total taxes on Form 941 would be considered a semiweekly schedule depositor.

    Employers are required to make their payroll tax deposits using the EFTPS. Beware that tax deposits that are late may be subject to a late penalty fee by the IRS. For more information, please read the IRS Publication 15 Circular E.

    4. End of the year requirements for Social Security taxes

    At the end of the year, you will need to give your employees Form W2s stating all payroll taxes (including social security taxes) you have withheld. You will also submit both Form W2 and Form W3  (the summary transmittal form) to the SSA, which records the taxes withheld for the year. Form W2 and Form W3 must be filed before the last day of business in February for the previous year.  For more information on filing your W2 and W3s to the SSA, please visit the IRS website.

    Employers looking to find an easier way to run payroll and stay compliant with payroll taxes may be interested in our Full Service Payroll. We’ll calculate all of your taxes and collect, remit, and file your payroll taxes on your behalf. Try it free!

    Understanding Exempt vs Nonexempt Employees

    As an employer, you will need to know the difference between exempt vs nonexempt employees. Employers need to categorize employees into appropriate groups based on their job duties and responsibilities. This will mainly affect payroll processing, as designating workers into these groups will have an impact on how you pay them and track the hours they work.

    Making Corrections on Form I-9

    What happens when you discover an error on a Form I-9?  It depends on the error.  The U.S. Immigration and Customs Enforcement (ICE) groups errors into two basic categories:  technical and substantive violations.  It is very important to know how to make corrections the right way. If during an ICE audit it is discovered that I-9’s were not corrected properly, civil money penalties and even individual charges of perjury and evidence tampering may result.

    How to Run Payroll: The Basics

    As a business owner, you are required to run payroll in regular intervals to compensate your employees for their time worked. How often you run payroll is predetermined by your employees’ pay dates, which normally are weekly, bi-weekly, semi-monthly, or monthly. You will want to run payroll a few days prior to the designated pay date in order to allow for processing time.

    Step One: Getting Ready to Run Payroll

    Employer: Before you can start running payroll, you will want to register your business with both federal and state organizations. This will

    Social Security Wage Base: What You Need to Know

    The social security wage base is used when determining the taxes you owe. Social security is a special type of tax that is withheld from all employees and self-employed individuals who are citizens of the United States.

    Why are social security taxes so important? Because social security taxes fund the trust that pays a living wage to those who are no longer able to work. This includes those who have reached retirement age, those who have lost their spouse and do not work, and those who are disabled. Without this tax, there would be no way to provide these benefits.

    W2 vs. 1099: Choose Wisely!

    It is easy to say W2s are for employees and 1099s are for independent contractors. The hard part is correctly deciding if a worker is an employee or a contractor. Unfortunately, it is not as simple as comparing apples and oranges. And the IRS penalties for misclassification can be steep, so you really want to get it right…

    What Are Nontaxable Wages?

    Nontaxable wages are wages given to an employee or individual without any taxes withheld (income, federal, state, etc.). However, most wages that you pay out to your employee(s) are taxable. So when are wages nontaxable?

    The IRS definition of a nontaxable wage and other tax-exempt income is fairly narrow.

    Understanding Taxable Wages

    When preparing your taxes or doing any paperwork that concerns income, you may see the term taxable wages or taxable income. As the term implies, not all your wages may be taxable. So the amount of income to be reported can actually be less than your total income. As an employer, you will need to understand the concept of taxable wages for tax purposes.

    What Is Third Party Sick Pay?

    Do your employees receive third party sick pay? If so, it is most likely payment for missed hours of work that qualified as short- or long-term disability. It is also likely that an insurance provider made those payments. If you are using a third party for sick pay, it is important to understand your responsibilities for reporting the sick pay and for paying any taxes.

    In many cases, employers add sick pay to their employees’ checks and there is no third party. These payments take the place of a regular salary when the employee is sick, injured, or otherwise temporarily disabled and unable to work. Sick pay is included in the employee’s gross wages for income taxes.

    However, there are some conditions in which a third party — not your business — provides the sick pay as a type of insurance benefit. The amount of third party sick pay is usually calculated as a percentage of what the employee would have been paid for actually working that same pay period.

    Do I Have to Pay Self-Employment Tax?

    Self-employment is part of the American dream for many. To do what you love and get paid for it can be incredibly rewarding if handled properly. However, one of the factors that needs to be considered is self-employment tax — which is a necessary evil when you are doing what you love!

    Benjamin Franklin, whose face graces the U.S. hundred-dollar bill, once said, “In this world nothing can be said to be certain, except death and taxes.” While taxes may be a certain part of doing business and working, you may not be so certain about how to properly account for those taxes if you are self-employed…

    What is Social Security Tax?

    Social security, officially called the Old-Age, Survivors, and Disability Insurance (OASDI), is a system designed to help support those who are no longer able to work due to old age. It also supports widows/widowers and those who are disabled. To fund social security payments, every employee, employer, and self-employed person in the U.S. is required to pay social security tax. This tax is automatically withheld from every paycheck issued by an employer. It’s the employer’s job to make certain that the tax is remitted to the appropriate agency at the correct time.

    By law, social security taxes can only be used to pay out social security benefits by the government and may not be used to fund any other purpose. This is to safeguard social security benefits for employees who have paid into the fund for future benefits.

    What is the Current Social Security Tax Rate?

    The standard social security tax is a flat rate of 12.4%. However, the employee is not responsible for paying the entire tax. Instead, they pay half of it (6.2%) and the employer is responsible for paying the other half (6.2%). This split ensures that employees don’t lose more than ten percent of their paycheck to one type of tax.

    Those who are self-employed, however, do have to pay the full 12.4%. This is because the IRS sees them as both employer and employee. The brunt of this burden can feel particularly heavy for those who are new to self-employment, and it’s the reason many suggest that those who work for themselves set aside 25 to 30% of all income to cover the higher tax rates that they may not be expecting.

    The Social Security Wage Base

    Note that only a certain amount of an employee’s earnings are subject to social security tax. There is a limit, or wage base, that is set by the government. This amount tends to increase every year. In 2014, only the first $117,000 an employee or self-employed person made was taxed for social security. In 2015, that amount increased to $118,500. You can find the social security wage base listed on the SSA website.

    How Can Employers Comply with Social Security Taxes?

    1. Get correct information from employee

    Small business owners will need to record each new employee’s name and social security number to ensure proper filing of taxes. Any employee who does not have a social security number will need to apply for one by completing Form SS-5. Nonresident aliens who are in the country will generally have social security taxes withheld on the wages you pay them also. There are exceptions to this general rule as listed on Publication 515.

    2. Calculate Social Security taxes

    You are required to withhold social security taxes, (as well as Medicare and income taxes ), from your employees’ wages and pay the employer’s share of these taxes. There are no withholding allowances (also known as deductions) for social security taxes. Typically social security (and Medicare) taxes are withheld from employee wages regardless of employee age, or if they are receiving social security benefits. However, there are some exceptions with types of wages such as employee expense reimbursements, which are not considered taxable.

    The amount of withholding is determined by multiplying the amount of wages by the employee tax rate (6.2% in 2015). Additionally, your employer contribution (6.2% in 2015) will need to be calculated. You will continue withholding social security taxes until the wage base for social security taxes is met for the year for each employee.

    Generally, it does not matter if a worker has had the maximum social security amount withheld from another employer. You will still continue to calculate the social security tax based on the wages paid by you. Also, it does not matter if the employee is part-time or a temporary worker. You can still figure the social security taxes the same way for part-time employees as you do for your full-time employees.

    3. Deposit and file Social Security payroll taxes

    Social security taxes (along with medicare and federal income taxes) must be deposited on regular basis. The most common deposit frequency is monthly, and is also the frequency assigned to new employers for the first calendar year of business. Employers with over $50,000 in total taxes on Form 941 would be considered a semiweekly schedule depositor.

    Employers are required to make their payroll tax deposits using the EFTPS. Beware that tax deposits that are late may be subject to a late penalty fee by the IRS. For more information, please read the IRS Publication 15 Circular E.

    4. End of the year requirements for Social Security taxes

    At the end of the year, you will need to give your employees Form W2s stating all payroll taxes (including social security taxes) you have withheld. You will also submit both Form W2 and Form W3  (the summary transmittal form) to the SSA, which records the taxes withheld for the year. Form W2 and Form W3 must be filed before the last day of business in February for the previous year.  For more information on filing your W2 and W3s to the SSA, please visit the IRS website.

    Employers looking to find an easier way to run payroll and stay compliant with payroll taxes may be interested in our Full Service Payroll. We’ll calculate all of your taxes and collect, remit, and file your payroll taxes on your behalf. Try it free!

    Understanding Exempt vs Nonexempt Employees

    As an employer, you will need to know the difference between exempt vs nonexempt employees. Employers need to categorize employees into appropriate groups based on their job duties and responsibilities. This will mainly affect payroll processing, as designating workers into these groups will have an impact on how you pay them and track the hours they work.

    Making Corrections on Form I-9

    What happens when you discover an error on a Form I-9?  It depends on the error.  The U.S. Immigration and Customs Enforcement (ICE) groups errors into two basic categories:  technical and substantive violations.  It is very important to know how to make corrections the right way. If during an ICE audit it is discovered that I-9’s were not corrected properly, civil money penalties and even individual charges of perjury and evidence tampering may result.

    How to Run Payroll: The Basics

    As a business owner, you are required to run payroll in regular intervals to compensate your employees for their time worked. How often you run payroll is predetermined by your employees’ pay dates, which normally are weekly, bi-weekly, semi-monthly, or monthly. You will want to run payroll a few days prior to the designated pay date in order to allow for processing time.

    Step One: Getting Ready to Run Payroll

    Employer: Before you can start running payroll, you will want to register your business with both federal and state organizations. This will

    Social Security Wage Base: What You Need to Know

    The social security wage base is used when determining the taxes you owe. Social security is a special type of tax that is withheld from all employees and self-employed individuals who are citizens of the United States.

    Why are social security taxes so important? Because social security taxes fund the trust that pays a living wage to those who are no longer able to work. This includes those who have reached retirement age, those who have lost their spouse and do not work, and those who are disabled. Without this tax, there would be no way to provide these benefits.

    W2 vs. 1099: Choose Wisely!

    It is easy to say W2s are for employees and 1099s are for independent contractors. The hard part is correctly deciding if a worker is an employee or a contractor. Unfortunately, it is not as simple as comparing apples and oranges. And the IRS penalties for misclassification can be steep, so you really want to get it right…

    What Are Nontaxable Wages?

    Nontaxable wages are wages given to an employee or individual without any taxes withheld (income, federal, state, etc.). However, most wages that you pay out to your employee(s) are taxable. So when are wages nontaxable?

    The IRS definition of a nontaxable wage and other tax-exempt income is fairly narrow.

    Understanding Taxable Wages

    When preparing your taxes or doing any paperwork that concerns income, you may see the term taxable wages or taxable income. As the term implies, not all your wages may be taxable. So the amount of income to be reported can actually be less than your total income. As an employer, you will need to understand the concept of taxable wages for tax purposes.

    What Is Third Party Sick Pay?

    Do your employees receive third party sick pay? If so, it is most likely payment for missed hours of work that qualified as short- or long-term disability. It is also likely that an insurance provider made those payments. If you are using a third party for sick pay, it is important to understand your responsibilities for reporting the sick pay and for paying any taxes.

    In many cases, employers add sick pay to their employees’ checks and there is no third party. These payments take the place of a regular salary when the employee is sick, injured, or otherwise temporarily disabled and unable to work. Sick pay is included in the employee’s gross wages for income taxes.

    However, there are some conditions in which a third party — not your business — provides the sick pay as a type of insurance benefit. The amount of third party sick pay is usually calculated as a percentage of what the employee would have been paid for actually working that same pay period.