Tax Services - Federal Payroll Taxes & Hiring Employees

Kenneth Gibbons LLC a full service CPA Firm located in Northern, NJ and NYC, NY which has experience with payroll taxes at the federal and state levels in New York and New Jersey.

An IRS issued Employer Identification Number (EIN) is required for any employer who wishes to hire employees. To put this into context, a sole proprietor who uses his or her social security number instead of an EIN for tax filing purposes cannot legally hire employees. 

Employers must have all newly hired employees complete a Form I-9 and Form W-4. Employers can pay wages in the form of cash (including checks), or in non-cash forms, such as employee benefits. Such benefits may or may not be subject to payroll taxes.  For example, contributions by an employer to an employee’s Health Savings Account (HSA) are not subject to payroll taxes if it is reasonable to believe that at the time of payment they are excludable from the income of the employee. Other non-cash wages are subject to payroll taxes based on fair market value.

An employer must remit an employee’s withheld payroll tax along with the employer matched portion of social security and Medicare taxes to the IRS within a semi-weekly or monthly based schedule..  An employer is a monthly based depositor if the total taxes for the look back period are $50,000 or less.  As a monthly depositor, the employer has to deposit the payroll taxes on the 15^th day of the following month.  For example, payroll taxes incurred for January would have to remitted by the employer to the IRS by February 15th  However, if an employer’s payroll tax liability is $2,500 or less, the employer can opt out of the monthly based schedule and pay the taxes along with the filing of Form 941.  An employer is a semi-weekly depositor if the total tax of the look back period is more than $50,000.  The remittance due date is a little more complicated then the monthly depositor so contact Kenneth Gibbons LLC to learn more. 

Employers are required to deposit 100% of payroll tax on or before the deposit due date to avoid penalties.  Also, penalties will not apply if an exception is met, such as the deposit shortfall doesn’t exceed the greater of $100 or 2% of the amount of taxes otherwise required to be deposited. 

Form 941 is filed quarterly on the last day of the month following quarter end: January through March is due April 30^th, April through June is due July 31^st, July through September is due October 31^st, and October through December is due on January 31^st. Payroll taxes are computed as follows:

• Social Security tax rate is 4.2% (due to the holiday tax rate passed by Congress) for the employee.  However, the matched portion by the employer based on the employee’s wages is subject to 6.2% (the original rate the employee had to pay).  Also, social security tax is capped at $106,800 of gross wages. 
• Medicare tax rate is 1.45% for the employee and the employer’s matched portion as well.  However, unlike Social Security, Medicare does not have a cap on wages. 
• Employee Federal withholdings are based on the employee’s marital status and number of allowances disclosed on Form W-4.

The IRS compares amounts reported on the quarterly Forms 941 with the Form W-2 amounts along with the employer’s annual Form W-3 amounts.  The following amounts are reconciled by the federal government: Federal income tax withholding, social security wages, social security tips and Medicare wages and tips.

The minimum time to retain records for payroll tax support is at least four years and entails keeping a record of amounts paid, dates of all wages, dates of employment for each employee, copies of Forms W-4, and copies of returns filed.

Payments to independent contractors in the amount of $600 or more must be reported to the IRS on Form 1099 MISC by the entity paying the independent contractor.

In addition to Federal Payroll tax requirements States have their own payroll tax requirements.  For example New Jersey requires completion of payroll tax forms NJ-927 and WR30. 

The State of New York for example requires: Register as employer by filing Form IA 100 (Report to Determine Liability), Employee's Withholding Allowance Certificate IT 2104 Withholding Method. 

Employee versus independent contractor is determined by specific criteria.  Generally a worker who performs services for you is your employee if you have the right to control what will be done and how it will be done.  This is so even if you give the individual providing the work the freedom of action. 

Kenneth Gibbons L.L.C. is a Full Service Certified Public Accounting Firm registered to practice in the State of New Jersey and New York.  We offer our services throughout both states including, but not limited to, West Orange  NJ, Clifton NJ, Fairfield NJ, Livingston NJ, Milburn NJ, Montclair NJ, New York City NY.

Please contact us for a free consultation. We are available by phone, or if preferred, we will come to your place of business at your convenience.