Taxes are a cost of doing business. Typically, the focus is on income taxes, but other business taxes deserve equal attention.
Here are some issues to consider with respect to these other business taxes.
Employers are required to withhold income taxes and the employees’ share of Social Security and Medicare taxes (FICA). They must also pay the employers’ share plus federal unemployment tax (FUTA). All of these taxes must be timely deposited with the U.S. Treasury. (State employment tax rules are not covered here.)
Employment taxes may be used to underwrite the cost of certain employee benefits or other tax breaks in the form of refundable credit amounts for employers. This applies to:
- Paid sick leave and paid family leave through September 30, 2021.
- Employee retention credit through December 31, 2021.
- COBRA premium assistance required from April 1, 2021, through September 30, 2021, for involuntarily terminated employees and those with reduced hours if the employer has a group health plan and is subject to COBRA.
- Research credit of up to $250,000 for small businesses (this is a permanent tax break).
The IRS has provided relief to employers for failing to deposit employment taxes because of the COBRA premium assistance credit, the employee retention credit, and the paid sick leave and family leave credits.
The IRS has a resource center for employment taxes. Here you’ll find links for figuring these taxes, making deposits, and filing returns.
Business owners who are not employees (e.g., sole proprietors) must pay their own Social Security and Medicare taxes via self-employment tax. This is essentially the employee and employer share of FICA, although one half is deductible.
This tax isn’t deposited with the U.S. Treasury as is employment taxes. It is paid along with income tax by the self-employed individual, typically through estimated taxes (explained later).
While businesses don’t pay sales tax on items they sell—they merely collect them from the buyer—responsibilities for collecting the tax, remitting it to the state, and filing appropriate tax returns does fall on them. If your business is within a state with no sales taxes, you’ve got it easy.
However, all states with sales tax now require remote sellers to collect sales tax on transactions in their state. A U.S. Supreme Court decision a few years ago said states could do this, and now the final two states—Florida on April 19, 2021, and Missouri on May 14, 2021—have adopted this requirement. Florida’s law starts July 1, 2021; Missouri’s law takes effect on January 1, 2023.
Small businesses are exempt from this requirement, but the definition of “small” varies from state to state. For example, in Florida, it means having sales of tangible personal property delivered into the state in the previous calendar year of $100,000 or less; the number of transactions don’t count. Businesses need to check the exemption in each state where they do business. Find a state-by-state guide from Avalara.
Some excise taxes are like a sales tax imposed by the federal government on various goods, services and activities; typically, the tax is paid by manufacturers and retailers. Most businesses in the U.S. don’t pay excise taxes, but some do. For example, there’s a 10% excise tax on tanning salons and a tax on sports wagering. Learn more about excise taxes from the IRS.
Excise taxes also include “penalties” on certain erroneous actions. For example, excess contributions to qualified retirement plans are subject to a 6% excise tax. So, too, are early distributions from qualified retirement plans and IRAs (the Tax Court said these were taxes, not penalties). And the penalty imposed on applicable large employers that choose not to provide affordable minimum essential health coverage to their full-time employees (the employer mandate under the Affordable Care Act) is yet another example of an excuse tax that falls under Subtitle D of the Internal Revenue Code (“miscellaneous excise taxes”).
While these aren’t separate taxes—they are prepayments of income taxes—they deserve considerable attention. This is because owners of pass-through entities may have to pay estimated taxes to cover their tax liability on business profits. Owners may not simply choose to pay what they owe when they file their return because doing so may result in underpayment penalties.
Learn more about how to address estimated tax matters from a previous blog.
While your largest tax payment may be for federal income taxes, don’t ignore other federal tax obligations. Work with a knowledgeable tax professional to be sure you’ve covered all your bases.