Tax Tips

As a small-business owner with employees, you are responsible for several federal, state and local taxes. As an employer, you must withhold certain taxes from your employees' wages. Federal employment taxes include the following:

• Federal income tax withholding
• Social Security and Medicare taxes
• Federal unemployment tax

Social Security and Medicare taxes pay for benefits that workers and families receive under the Federal Insurance Contributions Act. You withhold part of these taxes from your employees' wages and you pay a matching amount yourself.

The federal unemployment tax pays unemployment compensation to workers who lose their jobs. You report and pay this tax separately from Social Security and Medicare taxes and withheld income tax. You pay federal unemployment tax only from your own funds. Employees do not pay this tax or have it withheld from their pay.

Depositing Taxes

In general, you must deposit income tax withheld and both the employer and employee Social Security and Medicare taxes (minus any advance Earned Income Credit payments) by depositing electronically; mailing; or delivering a check, money order or cash to a financial institution that is an authorized depositary for federal taxes.

You can make your deposits using Electronic Federal Tax Payment System (EFTPS). This is a tax payment system provided free by the U.S. Department of Treasury, which allows businesses to pay federal taxes electronically via the Internet or phone 24/7.

Preparing and Filing Form W-2

At the end of the year, the employer must complete Form W-2, which reports wages, tips and other compensation paid to an employee. The form includes the employee's withheld income tax, Social Security and Medicare tax and any advanced earned income tax credit payments. A copy of this form must be given to the employee by Jan. 31 (Feb. 2, 2009, for 2008 W-2s) after the end of the year.

You must also send a copy of the W-2 to the Social Security Administration (SSA). You summarize the Forms W-2 using Form W-3. Filing these forms timely is important to ensure employees are credited with the proper Social Security amounts for retirement. Employers can prepare and file up to 20 W-2s at a time, free of charge, at the Social Security Administration's Web site. Using SSA's online W-2 filing, employers can also print out all the necessary copies of the W-2 for their employees, state taxing agencies, etc.

The due dates for filing Forms W-2 with SSA are:

• The last day of February for paper forms (March 2, 2009, for 2008 forms)
• March 31 for forms filed electronically

Tax Credits

If you hire an employee who is an American Indian or a long-term family assistance recipient, you may be able to claim a tax credit for a portion of the wages you pay to the employee.