Payroll taxes can be a headache for business owners. Employers are required to withhold some types of payroll taxes from an employee’s paycheck. Some payroll taxes must be paid by both the business owner and the employee, while some are the responsibility of the business owner alone. Along with understanding the different types of payroll taxes, employers must stay up-to-date on the amount of each tax, as well as the most current legislation regarding taxes. Many business owners consult a Reno CPA to make it easier.

What Are Payroll Taxes?

There are federal and state payroll taxes. A CPA can help business owners understand both types, but state payroll taxes usually create more problems for employers because the requirements are different depending on the location. In Nevada, there are no state income taxes. Individuals and business owners are only required to pay federal income taxes, social security tax, and Medicare. Like most states, Nevada does have an unemployment tax that business owners must pay. Nevada also requires many employers to pay an additional payroll tax, known as the Modified Business Tax.

Federal Payroll Taxes

The amount of federal income tax that a business owner takes out of an employee’s paycheck is determined by an IRS W-4 form. Employers are required to have every employee complete a W-4. Generally, social security and Medicare taxes (FICA) are shared equally by the employer and the employee. But in 2011, the employee tax contribution rate was lowered to 4.2% for social security. Business owners are still required to pay 6.2% on all wages less than $106,800. Medicare tax rates are still 1.45% for both parties. A CPA can keep business owners stay informed about current tax rates.

Unemployment Taxes

Unemployment taxes are collected by the federal government, as well as individual state governments, to fund the unemployment program. Most business owners are required to pay unemployment taxes by filing a Form 940 with the IRS. As of July 1, 2011, the federal unemployment tax rate is 6%, but a credit of 5.4% is available for employers who pay state unemployment taxes. In Nevada, the state unemployment tax is referred to as unemployment insurance tax, or UI tax. Calculating the UI tax rate depends on several factors that are best explained by a Nevada CPA.

UI Tax Rate

Any business owner in Nevada who pays at least $225 in wages within one calendar quarter is subject to UI taxes. The amount of the tax is a percentage of every employee’s wages, up to $26,400 (2012 wage limit). New businesses pay 2.95% for the first 14 to 17 quarters in operation. After this period, the UI tax rate is determined by Nevada’s ‘experience rating.’ Depending on how much a business pays in UI taxes and the unemployment benefits its employees receive, the UI tax rate can range from 0.25% to 5.4% of the total taxable wages the business has paid.

Modified Business Tax

On October 1, 2003, the state of Nevada made it a requirement for business owners to also pay an excise tax on their paid wages. The Modified Business Tax is a quarterly payroll tax based on an employer’s gross wages and paid to the Nevada Department of Taxation. This tax is in addition to the UI tax that is paid to the Employment Security Commission. The current Modified Business Tax rate is 0.63%, and there are no wage limits or caps to benefit the business owner. There are deductions available to reduce the tax. Most of these credits are associated with health care payments.

Many business owners are unsure of the legislation concerning payroll taxes, but failing to comply with state and federal tax laws can be detrimental to a company. An experienced Nevada CPA is the best resource for learning more about federal payroll taxes, as well as current information on the UI and Modified Business taxes.

Reno’s Best CPA,

Tim Nelson