A business which has employees is required to put those employees “on the books”. When a company sets up a payroll to pay its workers it will withhold taxes from that employee’s paycheck and make that payment on the employee’s behalf to the necessary taxing authorities. It will also make any additional “employer payroll tax” payments at that time as well. Employers are responsible to pay half the Social Security and Medicare Tax on their employee’s wages. This is equal to 7.65% of their employee’s salary. Although it sounds scary, setting up and operating a payroll is easier than one might think. With our service we take care of all withholdings and tax payments for you so there is no stress on your end. We will issue all employee’s W-2s at year-end and we are here for your with any questions. Below are some frequently asked questions as they pertain to payroll. Feel free to contact our office should you wish to discuss your business in more detail.
FAQs
Q: Why do I need a payroll? Why can’t I just pay my employees “off the books”?
A: Besides being the legally correct think to do, paying employees “on the books” allows you to deduct the full amount of their wages and corresponding payroll taxes from your income. Your tax bill will, therefore, be significantly less than it would be without those deductions.
Q: What is the difference between a W-2 and a W-4?
A: A W-4 is a form your employee gives you which allows you (or your payroll company) to figure out how much taxes to withhold from his or her paycheck. A W-2 is a form you give to your employee at the end of the year which shows how much wages he was paid and how much taxes were actually withheld from his paychecks throughout the year.
Q: What is the difference between a W-2 and a 1099?
A: A W-2 is the annual reporting form an employer give to his employees at the end of the year. It shows the amount of wages they received that year and the taxes withheld. A copy of this form is sent to the IRS as well. A 1099 is a form a business issues to independent contractors who were paid $600 or more in a calendar year. A 1099 just shows the gross amount paid to the subcontractor as no taxes were withheld.
Q: What is a W-9?
A: A W-9 is to a 1099 what a W-4 is to a W-2. It is the form an independent contractor provides to a business paying him for a job he or she did. A W-9 includes information such as the person’s name, SSN or EIN, and address. The information on the W-9 will be used by the payer at the end of the year to prepare a 1099 for that independent contractor.
Q: Can’t I just pay my employees on a 1099 and avoid the whole payroll issue?
A: Absolutely and unequivocally not. The IRS hates when employers try to skirt the law by reclassifying employees as independent contractors to avoid payroll taxes. The law is very clear as to who is considered an employee and who is an independent contractor. Paying employees on a 1099 when they should be on payroll will only cause issues for the company down the road. It could also cause problems within the company when the employee receiving the 1099 realizes that he is on the hook for all the payroll taxes that his boss was supposed to pay on his behalf!
Q: How do I get more information on setting up a payroll for my company?
A: Don’t hesitate to contact our office at 732-987-9975.
Q: How do I set up my company’s payroll now?
A: Click the link below!