State Unemployment Tax
State unemployment taxes are also paid by the employer and are not deducted from the employee’s wages. Each state has a different rate and different wage limits from which the taxes are calculated. For information on state-specific unemployment taxes and contact information for the agency that administers your state’s unemployment tax, use the Business Owner’s Toolkit.
Generally, hiring a payroll service is a very good idea. Businesses with hourly employees or employees earning commissions can save time and money by using a payroll service. One of the chief benefits is avoiding costly mistakes in payroll processing like failing to remit payroll taxes in a timely manner. Payroll companies calculate the amount of each paycheck and the tax obligations for employees; print the checks; and provide reports.
Federal Income Tax
Different business structures (sole proprietorship, partnership, corporation, or limited liability company) have different income tax requirements regarding filing dates, forms required, and tax rates and calculations.
Federal income tax is a pay-as-you-go tax. Business owners generally pay income taxes in quarterly estimated income tax payments. For more information on estimated income tax payments, refer to IRS Publication 505, Tax Withholding and Estimated Tax.
Self-employment tax is a social security and Medicare tax for individuals who work for themselves, similar to social security and Medicare taxes withheld from the pay of wage earners. Social security benefits are available to self-employed persons just as they are to wage earners. Like federal income tax, self-employment taxes are paid through quarterly estimated tax payments. For more detailed information on self-employment tax, refer to IRS Publication 533, Self-employment Tax.
Every state levies some form of tax on small businesses, but in some states some business structures (especially sole proprietorships) have little to no tax imposed. To learn more about tax structures in any given state, visit the Business Owner’s Toolkit site or a list of taxing authorities in each state.
Local authorities may tax personal property like machinery, equipment, furniture, supplies, leased equipment, and even movable machinery used in a business. Some cities and municipalities also levy income taxes on any business operating within their borders. Your county government or local municipality can provide information about the specific taxes that apply in your area and instructions for registering your business.
Sales and Use Tax
Sales taxes are added to the cost of a product or service and are generally paid by the customer. Most states and local taxing authorities impose a general sales tax on retail sales and certain services. Business owners are responsible for collecting these taxes and remitting them to the appropriate taxing authority. Goods purchased to resell from manufacturers or wholesalers are exempt from sales taxes because the tax will be paid by the retail customer. This is commonly referred to as a resale exemption.