As a business owner, one of the administrative issues you will contend with is keeping up with your obligations for local, state, and federal taxes. Many business owners might hire an accountant or tax professional to handle all business tax-related issues, but a high understanding of the business payroll tax system such as your business payroll tax obligations is highly essential.
Any business which has employees has the obligation to withhold business payroll taxes from its employee’s paychecks which will be remitted to the applicable local, state, and federal authorities at a specific time.
The taxes withheld which form the business payroll taxes may include Federal, state, local income taxes and FICA (Medicare and Social Security taxes). However, the type or kind of payroll taxes you will be required to withhold depends on your location and the type of business model you have.
Corporations may be required to pay one half of their employee’s Social Security, and Medicare contributions, the other half of it will be deducted from the employee’s paycheck. Also, Corporations have the obligation to pay State and Federal unemployment tax for their employees. This entire list of payroll tax expenses may be deductible for corporations.
However, they can also get a tax credit if they provide state unemployment tax contributions which can compensate their obligations to federal unemployment tax expense.
The Form 1120, specifically Line 17, will contain the sum of the amount of payroll taxes paid (Medicare, Social Security, and Unemployment) by Corporations. This form is called the corporate income tax rate returns, and these expenses are fully deductible and considered as “taxes and licenses.”
Partnerships and small business corporations do not pay corporate income tax but rather allocate their taxable income over to their partners or shareholders. Therefore, the deductible expense is not applicable to the company but spread over to the partners or shareholders.
Sole Proprietorships can also deduct the employer’s contributions (unemployment, Medicare and Social Security) to payroll taxes even if income is reported as would be for a regular taxpayer. The Line 23 of the Schedule C is used in reporting employer contributions. However, note that as a self-employed individual, there are no deductions on the employee portion of taxes, only the employer portion is deductible.
If you are a small business owner, you must always remember that you cannot deduct your own personal payroll tax liability simply because of your self-employed status. There are no favorable deductions in that section.
Therefore, your business can only deduct payroll taxes with respect to the kind of business entity you opened in the first place. When in doubt about an effective payroll system for your business, we are here to offer our assistance, call us (212) 320-8191 or mail us at email@example.com.
Urgent Tax Services
6009 16th Ave,
Brooklyn, NY 11204
Ph. (212) 320-8191
Fax (646) 626-6447