Payroll taxes are essentially taxes that local, state, and federal governments collect from employers based on the wages and salaries of employees. As an employer or business owner, you have the legal responsibility to withhold taxes from your employees and remit them on behalf of your employees. But did you know that there are specific circumstances in which you could avoid payroll taxes?
Payroll Tax Rules Exceptions
Let’s say your business is a partnership between a husband and wife or a sole proprietorship and you employ your minor child in your business. You’re exempted from withholding Federal Insurance Contributions Act (FICA) taxes from the wages of your child. You won’t also have to pay your half of the supposed FICA taxes because they’re essentially non-existent in this scenario, adds Sorenson & Company and other tax accountants in Salt Lake City.
Your child would likewise be exempted from paying Federal Unemployment Tax Act (FUTA) until they reach 21 years old. You could also deduct your child’s pay from your income taxes since it qualifies as a business expense. However, it’s vital that your child’s wages are justifiable for their work duties and that you document the hours your child worked to make it clear to the tax officials that your child is truly working and being paid for actual work.
In addition, since the IRS only requires employers to pay taxes on behalf of their employees, if you have independent contractors working for you, you’re not legally liable for including them in your payroll. They would be the ones responsible for paying and filing their own taxes.
Although there are great tax advantages for working with independent contractors, it’s immensely crucial that you classify all individuals who work for you accurately. Misclassifying employees as independent contractors is a federal offense punishable under tax laws.
Seeking Professional Help
Payroll taxes could be quite complex, particularly to small business owners who are hands-on in their business operations and those who are just starting out. But you should never leave your precious business exposed to legal issues, which could easily happen if you don’t do your taxes right.
With this in mind, work with a local accountant to ensure that your business is compliant with tax laws and that you leverage all the tax benefits that the tax code could offer.