With tax season just around the corner, many small business owners may wonder what their role is when doing the taxes for their business and that of their employees. A common question is what exactly is the definition for the federal tax withholding table?
A federal tax withholding table is a table or a chart that helps employers figure out how much income to withhold from their employees. This is usually in the form of federal income tax, Social Security and Medicare; it also may include state income tax, depending on the state in which the business is located.
Businesses figure out what to withhold by using the Internal Revenue Service's federal tax withholding table known as Circular E. The Circular E goes over what is new for the upcoming tax season, any changes or additions that have been made in regards to withholding income tax, and a reminder of calendar dates in which to have articles submitted or given to employees. For instance, employees must receive either a 1099 or a W2 by the end of January.
It also goes over the main responsibilities that you as the employer have for reporting, depositing, withholding, paying and correcting employment taxes. It goes over the forms that you need to give any employee, as well as those that you need to send to the IRS. For those types of businesses that are run by some or all family members, there are sections that go over the title and filing you would do.
For example, if you and your spouse are running a business together and sharing in the profits and losses, you are considered to be partners, regardless if you have a formal agreement.
The Circular E that is offered by the IRS is a helpful guide for not only small business owners, but businesses in general. It is an easy step by step manual that will help calculate what to take from your employees in regards to the income tax based on how much you are paying them. The main Website of the IRS goes in depth in regards to each section listed in the Circular E, explaining the purpose and reason for each.