Don't Let the IRS Destroy Your Small Business: Seventy-Six Mistakes to Avoid

By Michael Savage | Go to book overview

Chapter Two
Employees

WITHHELD TAXES

More often than not, when the owner of a business is in serious trouble with the IRS, it's because of his employees. And usually it has something to do with payroll taxes. Payroll taxes consist of two different kinds of tax, an employer-paid tax and withheld taxes. The employer-paid tax is the employer's share of the social security tax on wages: 7.65 percent of each employee's wages up to the wage base, plus 1.45 percent of wages above the wage base. (The wage base was set at $68,400 for 1998, and it increases every year with inflation.)

Withheld taxes come in two versions. One is the employee's income taxes that are withheld from his paycheck each pay period. These amount to 10 to 20 percent of gross pay, depending on the number of exemptions your employee claims on his Form W-4 (more on exemptions later). The other withheld tax is the employee's share of the social security tax on wages, which is exactly the same amount of money that you, the employer, pay in social security taxes -- 7.65 percent of the wage base and 1.45 percent of

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