Payroll laws are pretty confusing as they are consistently being updated. It is necessary to follow the payroll laws as defined by the federal and state law taxes. Many of the payroll laws are complex and require help from professionals who understand them. The basics of payroll laws are simple, as an employer you will pay taxes and your employee must pay taxes. Here is a guide to understanding payroll laws:

First, let's discuss the employee-paid taxes. An employer is required to withhold a certain percentage of an employee's wages for taxes. The state tax laws vary for each state so you will need to check with your State Department for the latest information on payroll taxes. All the taxes you withhold will need to be reported on your employee's tax withholding forms. There are 5 taxes you will need to withhold: Federal Taxes, Social Security and Medicare Taxes, State and Local Income Tax, Unemployment Insurance, and State Disability.

Each employer must withhold a certain amount of Federal income tax from an employee's paycheck based on information provided by the employee on a Form W-4. This form us the Employee's Withholding Allowance Certificate. Each employee can update their Form W-4 when needed to alter the amount of money that is withheld from their paycheck. Any changes to this form will affect the withholding amount. The Social Security and Medicare Taxes are also deducted from an employees wages to cover the Federal cost of providing care for the disabled, elderly, and survivors. The Medicare tax also provides hospital insurance for individuals who cannot pay for it.

Employers are also required to withhold taxes that are payable to the state and local governments. The employer must also withhold a portion for Unemployment insurance. Each employer must deduct a certain amount of an employee's wages to cover the unemployment compensation program that is set forth by state and local governments. Most employees are eligible to receive unemployment wages for up to 26 weeks after they have been laid off. An employee is only eligible to receive these wages if they have worked at least 6 months out the prior year and they meet the minimum earning requirements. Most states require an employer to deduct wages that will cover the disability compensation program. The money usually comes from Social Security retirement benefits and the amount you have to pay is about the same that you pay for regular Social Security.

Second, you will have employer-paid taxes. These taxes include: Social Security, Medicare, Federal and State Unemployment Insurance, and State Disability. Each employer is responsible for a certain amount of tax liability that is payable to Social Security. The difference between the amount that is collected from the employees and the entire tax that is due is the sole responsibility of the employer. Employers must also pay Federal and State unemployment insurance that will cover compensation for individuals who lose their jobs. The Federal Unemployment Tax is paid only by employers to help cover the administrative costs that are associated with individual state programs. Some states also require employers to pay a portion of their income to State disability programs.

 Payroll laws specify the payroll taxes are due semi-weekly or monthly, depending upon the size of your payroll. You need to check with the IRS payroll listing to find out what type of schedule your business is on. Since you are required to match the amount of money being put into Social Security and Medicare, you need to check IRS Publication 15. The state tax rate you pay will be based on the number of current and former employees you have on your payroll. If former employees are collecting unemployment, you must account for them as well. Since payroll laws are complex, it may be in your best interest to hire an accountant or payroll tax service that will take care of your taxes and keep records of them. Your payroll taxes need to stay up-to-date with the latest payroll tax law information that is released.

Most people who have a hard time learning payroll taxes are small business owners. Lager companies have people who work on payroll full time and keep up to date with payroll issues and changing payroll laws. Many businesses have a hard time keeping up with the ever-changing laws, not to mention to deadlines for filing. New regulations were passed a couple years ago that requires certain corporations to file their payroll electronically. There are new forms released by the IRS that change the way some companies do their payroll. For instance, some companies need to file taxes each quarter, while others may be able to file only once a year. The IRS currently receives more than 23 million Employers Federal Tax Return Document 941s. These documents are used by employers to report wages, tips, Social Security, Medicare, and income taxes paid and collected by the employer.

Recently, the IRS changed the compensation amount for standard mileage reimbursement. Most business are required to pay a mileage allowance to their employees for use of a personal vehicle for business purposes. Since the price of gasoline is constantly increasing, the IRS restructured its rules on mileage and now pays upwards of 48.5 cents per mile.

As a business owner, it is important to stay up-to-date with the latest payroll laws. If you fail to adhere to new regulations, you could end up paying thousands of dollars in penalty fees. The IRS has thousands of wage and payroll related regulations that must be properly understood. If you do not have the necessary knowledge, it is in your best interest to hire someone who does. Each state also has its own payroll laws that business owners need to follow. The IRS typically audits at least 13,000 small businesses each year and they bring in more than $41 billion dollars in total enforcement revenue per year.

A great way to avoid being audited is to purchase a payroll program that corresponds with your business income and taxes. You can also hire a professional who has payroll experience. An accountant or payroll service provider can help you with tax filing and will advise you on payroll matters. Some accountants will charge you an additional fee for filing taxes and they may even produce the paychecks for you. A payroll service provider will help you with all the aspects of payroll. A payroll service provider will file the correct tax documents on time and will make all the tax deposits to the IRS. Payroll service providers also provide you with year-end W2 statements and mail them to your employees. Most payroll service providers also offer the convenience of direct deposit for your employees paychecks. Depending upon the company you hire, you should expect to pay about $50 per pay period for a small business that has less than 20 employees. For each additional employee, you should expect to pay an additional $1 or $2. Many businesses have software programs such as QuickBooks that help businesses with payroll. QuickBooks updates on a daily basis from the internet, so you know it keeps up with the latest payroll laws. The IRS even has a section on their web site that helps businesses understand payroll laws and keep up to date with the current federal payroll laws.

A great way to avoid being audited is to purchase a payroll program that corresponds with your business income and taxes. You can also hire a professional who has payroll experience. An accountant or payroll service provider can help you with tax filing and will advise you on payroll matters. Some accountants will charge you an additional fee for filing taxes and they may even produce the paychecks for you. A payroll service provider will help you with all the aspects of payroll. A payroll service provider will file the correct tax documents on time and will make all the tax deposits to the IRS. Payroll service providers also provide you with year-end W2 statements and mail them to your employees. Most payroll service providers also offer the convenience of direct deposit for your employees paychecks. Depending upon the company you hire, you should expect to pay about $50 per pay period for a small business that has less than 20 employees. For each additional employee, you should expect to pay an additional $1 or $2. Many businesses have software programs such as QuickBooks that help businesses with payroll. QuickBooks updates on a daily basis from the internet, so you know it keeps up with the latest payroll laws. The IRS even has a section on their web site that helps businesses understand payroll laws and keep up to date with the current federal payroll laws.

An important payroll tax is the self-employment tax. Since many small business owners are self-employed, they are subject to this tax. If you are an independent contractor you must still pay Social Security and Medicare payroll taxes. The only way to do this is through the self-employment tax. An independent contractor is responsible for paying 15.3% of the total wages that are due in taxes. The self-employment tax is imposed on small businesses, farms, or partnership as well. Your Schedule C will indicate your net profit and if it is more than $400, you must calculate your self-employment tax on a Schedule SE. Each of these forms can be downloaded from the IRS's web site. A church employee such as clergy, ministers, and members of religious orders must also prepare a Schedule SE and figure out their taxes.

Covering the Basics

Hopefully this helps you with understanding payroll taxes. If you are still confused, you should seek the advice of a payroll accountant. The main points to remember are as follows:

• Payroll is simply the process of paying your employees for the work they perform.
• Payroll can be calculated hourly, by unit or by piece, salary, or by another approved method.
• The Gross wage is the pre-tax earning of an employee.
• Employers are responsible for withholding Federal and state taxes. After the taxes have been taken out, the remaining portion is your net pay.
• The employer is responsible for calculating and processing the deductions from the gross pay and is responsible for paying the employment taxes.
• The employment taxes include: FICA, FUTA, and other state and local taxes.
• The employer is responsible for depositing the taxes with the IRS on a set schedule.
• It is the employers responsibility to report all payroll tax returns to the IRS each quarter.