As a small-business owner with employees, you’re responsible for several federal, state, and local taxes. As an employer, you must withhold certain taxes from your employees' wages.

Federal employment taxes include:

• Federal income tax withholding
• Social Security and Medicare taxes
• Federal unemployment tax

Benefits that workers and families receive under the Federal Insurance Contributions Act are paid for by:

• Social Security taxes
• Medicare taxes

You withhold part of these taxes from your employees' wages. You also pay a matching amount yourself.

The federal unemployment tax pays unemployment compensation to workers who lose their jobs. You report and pay this tax separately from Social Security taxes, Medicare taxes, and withheld income tax. You pay federal unemployment tax only from your own funds. Employees don’t pay this tax or have it withheld from their pay.

Depositing Taxes

You usually must deposit both of these via the Electronic Federal Tax Payment System (EFTPS):

• Income tax withheld
• The employer and employee Social Security and Medicare taxes

EFTPS is a tax payment system provided free by the U.S. Department of Treasury. It allows businesses to pay federal taxes electronically via the Internet or phone anytime.

Preparing and Filing Form W-2

At the end of the year, you must complete Form W-2, which reports wages, tips, and other compensation paid to each employee. The form includes the employee's:

• Withheld income tax
• Social Security and Medicare taxes
• Advanced Earned Income Credit (EIC) payments

You must give a copy of this form to each employee by Jan. 31 of the year following the calendar year when you paid the wages.

You must also send a copy of the W-2 to the Social Security Administration (SSA). You summarize the Forms W-2 using Form W-3. Filing these forms in a timely manner ensures that employees are credited with the proper Social Security amounts for retirement.

You can prepare and file up to 50 W-2s at a time, free of charge, at www.ssa.gov. Using SSA's online W-2 filing, you can also print out all the necessary copies of the W-2 for your employees, state taxing agencies, and so on.

Due dates for filing Forms W-2 with SSA are:

• Last day of February for paper forms
• March 31 for forms filed electronically

Credits

You might be able to claim a credit for a portion of the wages you pay to an employee who’s:

• American Indian
• Long-term family-assistance recipient

To learn more, see these tax tips:

• Self-Employment Deductions
• Form W-2