In any business, the biggest expense is the labor payroll. It will be important for the tax preparation of a business to have the correct payroll and payroll taxes to be filed promptly. Any discrepancies in paychecks preparation and submission of payroll taxes may affect tax preparation adversely. Dr. Rastogi and RTFS LLC have been helping clients for preparing payroll paychecks and filing payroll taxes for over 10 years. We use RPA (Robotic Process Automation) technology with BOT to make paychecks. The accuracy of paychecks is perfect and the check making process is fast. A client can have a large number of employees, RTFS LLC’s RPA BOT can prepare the paychecks accurately.
A business can have two types of workers. The first one is the regular salaried or hourly workers (W2) employees and the other one is contract workers (1099 Misc. contractors). The first one, W2 employees pay payroll tax deductions with every paycheck. Each employee must fill out a W4 form to let the employer know about the exemptions for federal tax deductions. Besides this, each employee pays 6.4% social security taxes up to the annual limit of the salary and 1.45% Medicare taxes. These two taxes are mandatory for all w2 employees. Employer matches the same amount 6.4% Social security taxes and 1.45% Medicare taxes for each employee for the payroll taxes. Each employee also pays state and, in some cases, local township payroll taxes. In PA, besides federal payroll withholdings, employees pay 3.07% state taxes and generally, 1 – 4.5% township or city taxes. PA residents also pay PA UC (PA unemployment compensation) contribution of 0.06% and $1/week of LST (local school taxes). NJ and MD residents just pay state taxes and do not have any separate local taxes. All states do not have local taxes. The employer also contributes to PA UC taxes and the rate is adjusted by the state on an annual basis. Once these payroll tax deductions are taken out by the employer from the paychecks of the employees, it is the responsibility of an employer to deposit these taxes to the respective tax authorities, i.e. federal, state, local, and UC tax authorities. Employers should deposit all taxes on a biweekly, or monthly, or quarterly basis as per the directions of each taxing authority for each employer. Employers should also file quarterly reports with each taxing authority for the payroll taxes. Form 941 should be filed for every quarter for each employer with IRS. Form 940 for FUTA should be filed annually with IRS. At the end of the year, all W2 should be issued to every employee of an employer or entity before January 31st of the following year. All w2s should also be submitted to social security administration and state and local tax authorities before the 31st of January of the following year. RTFS LLC helps clients in making paychecks, submitting all withholdings of employees, and filing all reports with federal, state, and local tax authorities promptly. All w2 employees may also get employment benefits such as health care, retirement contribution by employer, holidays, and sick days pay.
The other contract workers who are given 1099 Misc. follow different sets of rules for the payroll payment. They are considered independent self-employed persons and do not have any withholdings of payroll taxes. They get the full amount as per the work contract. An employer has the least amount of work to do for these types of workers. However, to qualify as a 1099 Misc. worker, one should satisfy the following conditions:
- The work schedule is determined by the worker. The employer does not fix any work schedule as in the case of a W2 employee.
- Assignments are accepted on a case-by-case basis and workers can reject or opt-out of assignments.
- Workers complete assignments using their methods and work process.
- Tools, equipment, and supplies are provided by the worker although the employer may provide some training.
- Workers may provide their services to other clients.
Each contract worker must fill out a W9 form and submit to the employer. At the end of the year, an employer will issue 1099 Misc. to each worker and file 1099 misc. and 1096 forms with the federal, and state taxing authorities. All 1099 Misc. workers do not get any other benefits such as health care insurance etc. since they are considered self-employed workers. They also all pay all employment taxes to federal, state, and local taxing authorities.
