What Are Quarterly Business Taxes?
If you own a business and have employees, you are responsible for paying certain taxes quarterly to the IRS. In addition, if you live in a state that imposes individual income tax, you must pay employer taxes to your state Department of Revenue.
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Federal 941 Taxes
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As an employer, you must file IRS Form 941, Employer's Quarterly Federal Tax Return. This return is a reconciliation of the tax deposits you make during the quarter for amounts you withhold from employee paychecks. If you make all your deposits on time, you should not owe additional tax when you file your 941 return. The amount you withhold from employees includes federal income tax; the employee portion of Social Security and Medicare taxes; and your business-matching portion of Social Security and Medicare taxes. You must file the return each quarter even if you do not pay any wages during the period.
Unemployment
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If you have employees, you must make state and federal unemployment tax payments each quarter. These contributions fund the unemployment compensation fund. Federal unemployment funds go to states with inadequate resources to compensate local taxpayers that receive unemployment benefits. As an employer, you must contribute to these funds solely through your business income. Do not deduct any amounts from your employees to pay your business unemployment taxes.
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State Income Taxes
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If your business operates in a state that imposes individual income taxes, you must withhold state income tax from your employees' pay. Most states require that you make quarterly tax deposits on behalf of your workers. Your business does not have matching requirements for state income tax.
Penalties
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Both the state and IRS taxing authorities will impose penalties if you fail to deposit taxes or file your quarterly taxes on time. Penalty rates vary depending on how far behind your business is in fulfilling its quarterly obligations. If you fall behind, you may be subject to more than one penalty assessment. Examples of common penalty types include late filing, failure to deposit and failure to file penalties. There are penalties assessed on the amount you owe when you file your quarterly taxes, backdated to the day the return was originally due. In addition to the penalty assessments, you will also accrue interest charges on any unpaid balances.
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