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Robert A. Imparato, Jr CFP®
CERTIFIED FINANCIAL PLANNER™ professional
Craig A. Hyldahl CFP®
CERTIFIED FINANCIAL PLANNER™ professional
R.I.C.H. Planning Group, LLC
105 Fieldcrest Avenue, Suite #507
Edison, NJ 08837
Robert: 732-326-5240
Craig: 732-326-5240
Fax: 732-326-5331
Robert: robert@richplanninggroup.com
Craig: craig@richplanninggroup.com
Website: www.richplanninggroup.com
January/February 2021
Understanding Payroll Taxes
Sole proprietors who decide to add employees need to understand payroll taxes. As an employer, you are expected to withhold and pay federal payroll taxes. And if your employees work in a state with state income tax, you’ll need to withhold those too.
Federal Taxes
Both you and your employee must each pay 6.2% for Social Security and 1.45% for Medicare tax. These two taxes are commonly called FICA tax and the Social Security portion has a wage cap. For 2021, wages up to $142,800 are taxable for Social Security.As an employer, you’ll pay the federal unemployment tax which is 6% on the first $7,000 of each employee’s earnings. For high earning employees, you must withhold the Additional Medicare Tax which is 0.9% of wages in excess of $200,000 in a year.
Based upon your employee’s Form W-4 inputs, you’ll need to withhold federal income tax from their wages. The amount to withhold depends on things like tax filing status, number of dependents and whether the employee has multiple jobs.
State Taxes
Most states have their own withholding form that your employee completes when they are hired. Keep in mind your employee can update these state forms, like the federal Form W-4, at any time to change their withholding amount.Most states require the employer to pay a state unemployment tax. This tax rate varies so check with your local taxing authority to find your rate. Keep in mind some states also require employees to pay the state unemployment tax so this may need to be withheld from your employee’s paycheck.
Lastly, some cities, towns, and other local governments impose a payroll tax. Consult your tax advisor to make sure you are paying all required taxes correctly.
Don't Forget to File and Pay
After you’ve withheld the employee’s portion of the payroll taxes, you must file payroll tax returns and pay the tax to the taxing authorities. Be sure to file on time because there can be significant penalties for being late.GE-3252618 (9/20)(Exp. 9/22)
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Duly registered and licensed financial professionals offer securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA,SIPC (Equitable Financial Advisors in MI & TN), offer investment advisory products and services through Equitable Advisors, LLC, an SEC-registered investment advisor, and offer annuity and insurance products through Equitable Network, LLC (Equitable Network Insurance Agency of Utah, LLC in UT; Equitable Network of Puerto Rico, Inc.). Equal Opportunity Employer - M/F/D/V. Equitable Advisors and its associates and affiliates do not provide tax, accounting, or legal advice or services.
R.I.C.H. Planning Group, LLC is not owned or operated by Equitable Advisors or Equitable Network. GE-6572038.1 (4/24)(Exp. 4/26)
CFP® and CERTIFIED FINANCIAL PLANNER™ are certification marks owned by the Certified Financial Planner Board of Standards, Inc.
These marks are awarded to individuals who successfully complete the CFP Board's initial and ongoing certification requirements.
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