Businesses must keep accurate records of employee wages, deductions, and tax payments. This ensures compliance with federal and state regulations.
To meet regulatory standards, a business must obtain a federal tax ID and corporate number. A sales tax permit is also needed to collect and report sales taxes.
Tax ID and Corporate Numbers
When starting a new business, it’s essential to understand the differences between tax identification numbers and corporate numbers. This knowledge will help you file taxes correctly and ensure your business complies with the laws of your state and federal jurisdictions.
The state and federal tax guide is an essential resource for individuals. And businesses seeking detailed information on tax obligations and regulations at both levels of government.
The state and federal tax guide is an essential resource for individuals. And businesses seeking detailed information on tax obligations and regulations at both levels of government.
A tax ID number is a nine-digit number used to identify taxpayers and businesses for federal taxation purposes. The IRS assigns these numbers to companies, trusts, estates of decedents, and other entities required to pay taxes. A company’s tax ID number is distinct from its name and must be included in all filings, records, and correspondence with the IRS.
Some of the most common types of tax ID numbers are SSNs, EINs, FEINs, and TINs. An SSN is a unique nine-digit number issued by the Social Security Administration to individuals, such as workers and their dependents. Banks and other financial institutions often require this number when opening accounts.
An EIN, or federal employer identification number, is a nine-digit number the IRS assigns to business entities such as corporations and partnerships. Unlike SSNs given to individuals, an EIN is used to identify a business for federal taxation purposes.
TINs, or individual taxpayer identification numbers, are nine-digit numbers issued by the IRS to people who aren’t eligible for SSNs or EINs. For example, nonresident aliens working in the United States must obtain an ITIN to report and pay taxes on their income.
Payroll Taxes
Payroll taxes are levied on a worker’s taxable earnings and help fund several essential government programs. For example, payroll taxes are used for Social Security (Old-Age, Survivors, and Disability Insurance), Medicare, and federal unemployment insurance. These programs are vital to the lives of many individuals, with Social Security alone providing benefits to over 1.2 million beneficiaries in 2019 alone.
Employers must be diligent about withholding and depositing payroll taxes to avoid penalties. Typically, these payments are made quarterly and may cover income tax withholding at the federal, state, and local levels and employer contributions to FICA and FUTA.
Employees’ income tax withholding is based on the information they provide to their employer via Form W-4. The resulting amount is then automatically deducted from their paycheck. Additionally, many states levy additional income taxes at the county or city level, which must be withheld.
Keeping up with these state requirements, filing deadlines, and submitting the correct tax forms can take time for businesses not used to handling them. As a result, it is often best to partner with a trusted payroll. And HR provider who can manage all aspects of payroll tax compliance in multiple jurisdictions. This way, companies can ensure they meet all obligations while mitigating the risk of costly penalties for failing to comply with varying state regulations.
Sales Taxes
Sales taxes are one of the largest sources of revenue for state and local governments. However, they can be complex and challenging to keep up with. Businesses need the right tools to ensure compliance with these laws and stay up-to-date on any changes.
While the concept of sales tax is relatively straightforward, several factors influence. Whether or not you’re required to charge sales tax on your products and services. For example, the definition of taxable goods and services varies by state. Additionally, many states have varying sales tax rates and nexus requirements.
For example, companies were only required to collect sales taxes in states with a physical presence. However, that decision changed the rules, and now, more companies are required to collect sales taxes. This is due to the emergence of economic nexus, which now includes factors like referrals, affiliate relationships, and even business travel to establish an obligation to collect sales tax in a state.
In addition to sales taxes, some states impose a complementary consumer use tax on purchasing taxable goods and services. While this is rare, it’s still important to know how these taxes work. Because if you’re not charging the correct sales tax amount, you could avoid fines or other penalties.
Excise Taxes
Unlike sales taxes, excise taxes target specific products like gasoline, alcohol, or airline tickets. These taxes can be based on either a percentage of value or a fixed amount per product, known as ad valorem or flat excise tax. Economists often use these taxes to encourage or discourage behavior, such as buying certain products. Other reasons for excise taxes include revenue generation, earmarking, or progressivity measures. Federal excise taxes have a wide variety of taxes on highway tractors and trailers, “gas-guzzler” vehicles, tires for highway use, recreational equipment, coal, petroleum products, vaccines, firearms, air transportation, communications services, policies issued by foreign insurance companies, wagering and removal of complex mineral resources from deep seabeds. Many state governments have excise taxes, including tobacco, ozone-depleting chemicals, and firearms.
Most businesses that manufacture or sell chosen goods or services pay these types of taxes, although consumers don’t see the cost separately since it is baked into the price of the good or service. As with other taxes, the proceeds go into trust funds for projects related to the products or services being taxed. For example, the aviation excise taxes that airlines collect are used to make airport improvements. Compared to the OECD average, the United States’ excise tax rates are lower than average.