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Tom Meaglia, ChFC®, AEP®,

CLU®, CRPC®, MSFS

Chartered Financial Consultant

Investment Advisor Representative

Chartered Retirement Planning Counselor

CA Insurance Lic. #0567507

 

Meaglia Financial Consulting

2105 Foothill Blvd., #B140, La Verne, CA 91750

 

Toll Free: 800-386-3700

Bus:         909-593-6105

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Email: tom@meagliafinancialconsulting.com

Website: www.meagliafinancialconsulting.com

January/February 2021

Understanding Payroll Taxes

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.


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Thomas Meaglia is an Investment Adviser Representative of Coppell Advisory Solutions LLC, dba, Fusion Capital Management, a registered investment adviser that only conducts business in jurisdictions where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. The firm is not engaged in the practice of law or accounting.
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