Requirements Regarding Taxes Paid by Sole Proprietors Who Have Workers.

Hiring people is a clear sign of a company’s growth and stability. Adhering to all of the necessary reporting standards is the only real challenge.

Taxes such as FIT (federal income tax), STATE income tax, SSI, and FUTA (federal unemployment insurance) are typically withheld by employers and deposited by the government. The worker may also have to withhold and pay state and local income taxes, depending on where they are employed.

The earnings of a sole proprietorship, even after the hiring of an employee, are still liable to self-employment tax; the proprietor cannot also be considered an employee. Businesses owned by corporations are an exception to this rule because the owners are also regarded to be workers of the corporation.  Find out how to navigate the 2022 tax law changes with the help of certified business performance advisory services.

Income tax filing at the federal and state levels

A W-4 form is one of the first pieces of paperwork an employer should get from a new hire. Taxes on federal and state income can be calculated using this form. If an employee does not submit a W-4, income taxes on their wages must be withheld at the maximum rate applicable to their salary.

• Methods of reporting include annual filing of IRS Form 943 by agricultural employers and quarterly filing of IRS Form 941 by most other companies. Individual states have different requirements for reporting income tax withholdings.
• Year-reporting: Every year, in addition to submitting Forms 941 and 943 to the IRS, employers must also submit IRS Form W-3 to the SSA, along with copies of each employee’s W-2.
  

Revenue Collected for Medicare and Social Security

Social security and Medicare taxes (together referred to as “FICA” taxes due to their origins in the Federal Insurance Contributions Act) are deducted from employees’ paychecks and matched by the employer.

The standard rate of withholding for Social Security and Medicare is 6.2% and 1.45%, respectively, as of this writing.

Since 2013, if an employee’s earnings or other forms of remuneration exceeds a certain level dependent on their filing status, the employer must withhold 0.9% of that amount as Additional Medicare Tax. But companies are exempt from contributing to the Additional Medicare Tax.

Methods of Disclosure. Most businesses must submit IRS Form 941 on a quarterly basis to report FICA deducted from employee pay, while agricultural businesses must submit IRS Form 943 on an annual basis, both by February 28.