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Use these tips to help manage your small business payroll and remember, KPMG Spark facilitates payroll and and offers invoicing services in addition to online accounting services.

As with many services available to small business owners, you face a choice when it comes to payroll and payroll tax. You can hire someone to do it, or you can do it on your own. But what is the real cost of managing your small business payroll all by yourself? Let’s take a step-by-step look into it.

What are payroll taxes?

Payroll tax refers to the taxes withheld from and paid by business owners and/or their employees at the local, state, and federal levels. Payroll taxes fund different initiatives depending on the geographical area and, on the federal level, that includes Medicare and Social Security programs. In order to calculate the amount of payroll taxes, you need to know the current tax rate – at the local, state, and federal levels. And, these rates may change, and may be subject to caps, on a yearly basis, so keep that in mind when exploring payroll options.

How to process your own payroll

Step 1: Find or sign up for an Employer Identification Number (EIN)

Prior to doing payroll yourself, your business will need to acquire an Employer Identification Number (EIN). This identifies your company on all federal forms (and on some state forms) in order to correctly track taxes, credits, and other important information. The EIN essentially acts as a Social Security number, or SSN, for your business. You may also need to get a state EIN depending on where you are located.

Step 2: Choose payroll schedule and calculate hours

After you register your EIN, keep three schedules in mind:

i.                employee pay dates,

ii.              tax payment due dates (when are taxes due to the authorities), and

iii.             tax filing deadlines (when do you have file forms to report taxes withheld and paid).

These are important dates for you and your employees and must be tracked meticulously in order to maintain accuracy. Also, make sure to calculate how many hours and/or days each employee works. This can be done manually or via software. Whatever option you choose, accuracy is vital as the amount of hours worked and the amount paid per hour will directly impact the amount of income tax you should withhold from the employee’s paycheck.

Step 3: Have all employees complete a form W-4

The Form W-4 is a tax form that must be completed by every employee prior to starting work. The form is completed so that you, as the employer can withhold the correct federal (and other) income taxes from your employee’s pay. This form records filing status as well as any personal allowances the employee may claim; the more allowances that are claimed on the form, the lower the amount of tax that is withheld on every paycheck.

Step 4: Calculate and withhold income tax

Payday for your employees and payday as a business owner may be two completely different things. Unfortunately as the business owner, a lot of work is required to make payday happen. You need to determine which local, state and federal taxes to withhold from your employees’ pay. Make sure to keep track of the business portion and the employee portion of each tax category. You must also determine how quickly any withheld taxes are deposited with the local tax authorities – late deposits may result in interest and penalties assessed by the tax authority.

Step 5: Pay taxes and manage paperwork

When it’s time to pay your taxes, make sure to submit your local, state, and federal taxes. The scheduling of these payments varies depending on location, but is often a monthly process. After submitting payment, make sure to submit required documents where necessary. For example, business payroll tax returns are usually required to be filed with the IRS every quarter, but state and local tax returns may vary by location. Last but not least, don’t forget to prepare any required annual filings (for example, after the end of each year, every employer must file a Form W-2 for certain employees; Form W-2 is used generally to report income, social security, or Medicare taxes withheld from an employee’s wages).  

Payroll with KPMG Spark: automatic, intuitive, and easy

KPMG Spark offers online accounting and bookkeeping services, as well as a personal bookkeeper to assist small business owners and answer questions. KPMG Spark also facilitates access to payroll services through ADP.

 

We help you manage payroll tax and tax season. We know the deadlines, we know your business, and we help to take away the time-consuming drudgery of making sure your taxes are filed timely and correctly. Also, because all our clients have an assigned CPA, we assist to correctly complete tax forms and mitigate tax issues.

 

Schedule a consultation today and see what KPMG Spark can do for you.

 

·       This blog article is not intended to address or provide advice concerning the specific circumstances of any particular individual or entity and does not constitute an endorsement of any entity or its products or services.

·       Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.

·       The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

Eric BeardenSeptember 29, 2020Posted In: Accounting Info

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