corporations,
partnerships, nonprofit associations, trusts, estates of decedents, government
agencies, certain individuals, and other business entities.
You are required to
obtain an EIN if you do one or more of the following:
1. Form a C or S
corporation or partnership (in this case the EIN serves essentially the same
purpose that a social security number does for a sole proprietorship)
2. Pay wages to one
or more employees or File pension or excise tax returns
A sole proprietorship
with no employees, pension plans, or excise taxes does not need an EIN. A sole
proprietor can use the social security number for income tax, self employment,
and other tax purposes.
For more detailed
information on how to determine whether you should obtain an EIN, refer to the
IRS publication Understanding Your EIN. To obtain an EIN you must complete IRS
Form SS-4. Banks require an EIN to open a corporate or partnership bank
account.
Payroll Taxes and Withholding Taxes
Employers are
responsible for withholding taxes from employees’ paychecks, sending them to
the proper government agencies, and other employer tax obligations. The major
employer paid taxes (FICA, federal unemployment, and state unemployment taxes)
will be explained later in this section.
Social Security and Medicare Taxes
The Federal Insurance
Contributions Act (FICA) provides for a federal system of old age, survivors,
disability, and hospital insurance. The first three are financed by the social
security tax, while hospital insurance is financed by the Medicare tax. To
learn more about the five major benefits covered by Social Security taxes
(retirement, disability, family benefits, survivors and Medicare), please refer
to the Social Security Administration’s
Web site.
Employers must
withhold social security and Medicare taxes from employees’ wages and pay a
matching amount. These taxes have different rates and only the social security
tax has a wage base limit. There is no wage base limit for Medicare tax; all
covered wages are subject to Medicare tax.
No comments:
Post a Comment