Articles Posted in Payroll Tax

At the end of the year, some employers reward their employees with year-end bonuses. This can be a nice way to close out the year, but it can also bring questions about taxes. How will the IRS treat your year-end bonus when taxes come due in a few months? If your employer withholds taxes from your paychecks, they have already done most of the work for you. Depending on the size of the bonus, our Los Angeles tax advisors feel that it is often still a good idea to make sure you will not get any surprises in your tax return.

Which Bonuses Are Taxable?

Year-end bonuses can be extremely generous, or they can be a token of an employer’s appreciation (emphasis on “token.”) A bonus could take the form of a fruit basket or other gift item, or it could come in check form.

Small gift items are not necessarily considered “income” for federal tax purposes. You probably do not have to report that fruit basket, for example. Larger gifts, like a car or something similarly pricey, will count as “income.” If your employer hands you a check at the end of the year, that is definitely taxable income.
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Businesses with employees have federal tax obligations besides income tax. The Internal Revenue Code (IRC) makes both employers and employees responsible for paying employment taxes, but the responsibility for transmitting those tax payments to the IRS belongs solely to the employer. If an employer fails to pay employment taxes or file an employment tax return, the IRC authorizes the government to create a return for the employer and assess the amount of tax due. The IRS has created a program that allows automated creation of missing returns, but the program is reportedly understaffed and lacking in other resources. A recent audit by the Treasury Inspector General for Tax Administration (TIGTA) found that these deficiencies in the program caused the IRS to miss billions of dollars in employment tax assessments.

What Are Employment Taxes?

The Federal Insurance Contributions Act (FICA) requires both employees and employers to pay the following employment taxes:
– 6.2 percent of the employee’s wages for “old-age, survivors, and disability insurance,” also known as Social Security; and
– 1.45 percent of the employee’s wages for “hospital insurance,” or Medicare.
The Social Security Administration (SSA) sets a cap on the amount of earnings subject to the 6.2 percent Social Security tax. As of the end of 2018, the cap is set at $132,900. There is no cap on earnings subject to the 1.45 percent Medicare tax.

The Federal Unemployment Tax Act (FUTA) requires employers, but not employees, to pay an excise tax of 6.0 percent of each employee’s wages up to $7,000.
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Businesses are required to file annual income tax returns with federal and state tax authorities, and they may also have to file payroll and sales tax reports. Failing to file a return on time can lead to penalties, interest, and other consequences. Even if you or your business is not able to pay the full amount of tax owed, it is better to file a return on time. For most types of tax, the IRS and state authorities are willing to allow a payment plan. The most notable exception is federal payroll tax. To avoid any penalties, you should promptly consult a California tax lawyer who can advise you on your obligations.

What Taxes Does My Business Have to Pay?

Businesses in California must pay federal and state income tax. The federal form they must use depends on the type of business entity, such as a corporation, limited liability company (LLC), partnership, or sole proprietorship.

If a business has employees, it must pay payroll taxes and file a separate return with the IRS. Employers must also pay into federal and state unemployment insurance funds. Businesses that sell goods or provide services deemed taxable by state and local law must collect sales tax from customers and file reports with the state.
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Taxes are a huge problem for those who are working in the marijuana industry. That’s because high tax bills frequently hit cannabis businesses. Often, marijuana excise taxes are being assessed along with the regular business taxes. Although some business owners of marijuana are fighting back, they usually lose.

One of the marijuana tax law problems is the IR Code Section 280E. It is a part of a tax rule that prevents businesses in the industry from writing off those standard business deductions. As a result, it created a high tax rate.

Cannabis is a controlled substance. Although the marijuana tax law denies any deductions, it allows cannabis business to continue to deduct a portion of their expenses which are covered by the Cost of Goods Sold (COGS). To maximize their deductions, marijuana business owners allocate their expenditures to COGS.

As a business owner, one of your responsibilities is to file and pay the payroll taxes for your staff. The Employment Development Department (EDD) administers this type of tax in the State of California. The EDD also identifies and investigates any potential California payroll tax problems.

In California, EDD is one of the largest departments. It regulates payroll tax regulations for businesses and individuals in this state. It administers the following areas:

Employment Training Tax. It is retained at a rate of 0.1 percent with a wage limit of $7,000. This tax provides funds for training employees to make California a more competitive state in business.

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