By Amalya Teitelbaum, Business Editor and Manager
Benjamin Franklin once stated, “In this world, nothing can be said to be certain, except death and taxes.” To even the most experienced eye, filing taxes is an extremely daunting task both on the individual and the corporate level. However, when broken down into simple steps, systems, and concepts, this topic can become much more intelligible.
In the United States, there are three tax systems: regressive, proportional, and progressive. A regressive tax system levies the same percentage on products or goods purchased regardless of the buyer’s income.A proportional tax applies the same tax rate to all individuals regardless of income. A progressive tax imposes a greater rate of taxation on higher income levels, operating on the theory that high-income earners can afford to pay more, and thus should do so to support societal needs. The US federal tax operates under a progressive system.
Just as taxes must be paid by individual earners, companies and employers must pay them as well. For employers, however, there are several types of taxes to be paid at local, state, and federal levels.
Before an employer begins the process of filing corporate taxes, they must first retain an Employer Identification Number (EIN) also commonly referred to as a Federal Tax Identification Number. This is a nine-digit number that the IRS uses to identify and section business entities for record purposes. Furthermore, it allows owners to legally hire and pay employees, pay federal taxes on company profit, apply for business licenses, and open a business bank account. EINs are used by employers, corporations, partnerships, and sole proprietors, alongside a myriad of other business entities.
As an employer, one is responsible for reporting and depositing employment taxes, including federal income taxes, Social Security and Medicare taxes, and Federal Unemployment (FUTA) taxes – taxes that provide payments of unemployment compensation to workers who have lost their jobs. There are three steps to filing these. First, an employer deposits the employment taxes. As stated by the IRS, employers must deposit federal income tax withheld (from an employee’s paycheck), as well as social security and Medicare taxes. The IRS has two tax payment deposit schedules, monthly and bi-weekly, and an employer can determine which schedule applies to their business by checking the requirements for both on the IRS website. All federal tax deposits must be made electronically through the Electronic Federal Tax Payment System (EFTPS). The second step is reporting the employment taxes. While the employer has already given over the taxes they must now submit an official report on what they deposited. Included in what an employer must report are wages, tips, and other compensation paid to any employee in their company. These totals are in addition to the original deposit incomes. Thirdly, once an employer has deposited and reported the taxes, they must maintain the taxes – specifically the tax records. Employers should keep all records associated with employment taxes, including amounts and dates of all wage and pension payments made to all employees, for at least a few years in case of an error in any part of the filing process.
Many employers may simply leave it up to their company’s hired accountants to deal with the processes and concepts and concepts mentioned above. However, it is recommended that employers themselves still have an understanding of the tax system.