Businesses must understand how self‑employment tax, employment taxes, unemployment taxes, and estimated payments work. Each category has its own rules, forms, and thresholds.
Self‑Employment Tax
Self‑employment tax covers Social Security and Medicare for individuals who work for themselves. SE tax applies when:
- Net earnings are $400+
- Church employee income is $108.28+
Rate: 15.3% (12.4% Social Security up to the annual wage base; 2.9% Medicare on all earnings). Additional Medicare Tax of 0.9% applies when income exceeds filing‑status thresholds.
Before applying rates, net income is reduced by the employer‑equivalent portion (7.65%).
Employment Taxes
Employment taxes apply to wages paid to employees, not independent contractors. Employers must collect:
- Form I‑9 for work eligibility
- Form W‑4 for income tax withholding
Employment taxes include:
- Federal income tax withholding
- Social Security and Medicare (FICA)
- Federal and state unemployment taxes
FICA rates:
- Social Security: 6.2% employer + 6.2% employee
- Medicare: 1.45% employer + 1.45% employee
- Additional Medicare Tax: 0.9% withheld on wages over $200,000
Report FICA on Form 941 quarterly or Form 944 annually for qualifying small employers.
Unemployment Taxes (FUTA & SUTA)
Employers pay unemployment taxes; employees do not.
FUTA applies if the business:
- Paid $1,500+ in wages in any quarter, or
- Had 1+ employees in 20+ weeks
FUTA rate: 6.0% on first $7,000 of wages. State unemployment payments may provide up to a 5.4% credit, reducing FUTA to 0.6% if the state is not a credit‑reduction state.
Family Employment Rules
Special rules apply when family members work in a business:
- Child employed by parent:
- Under 18: no FICA
- Under 21: no FUTA
- Income tax withholding still applies
- Spouse employed by spouse:
- FICA applies
- No FUTA
- Parent employed by child:
- FICA applies
- No FUTA
Electronic Tax Deposits
All federal tax deposits must be made electronically through EFTPS. Penalty for not using EFTPS when required: 10%.
Deposit schedules:
- Monthly: prior liability ≤ $50,000
- Semi‑weekly: prior liability > $50,000
Trust Fund Recovery Penalty
A responsible person who willfully fails to deposit or pay trust fund taxes can be personally liable for 100% of the unpaid tax.
Estimated Tax Payments
Estimated tax applies when income is not subject to withholding.
- Individuals (sole proprietors, partners, S corp shareholders): pay if expecting to owe $1,000+
- Use Form 1040‑ES
- C corporations: pay if expecting to owe $500+
- Use Form 1120‑W or EFTPS
Payment timing:
- Individuals: 4th, 6th, 9th, and 1st months
- Corporations: 4th, 6th, 9th, and 12th months