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State and Local Taxes

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					                                   State and Local Taxes

         Small businesses owners are dependent upon each state for their liability when it
comes to payroll taxes for due a state because of the business operation. Each state
varies, and there are some states that do not withhold tax and require no state income tax
filing; Each state requires that an employer deduct and withhold unemployment tax, that
is comparatively the same as at the federal level.
         Generally, however tax rates for the state level on unemployment tax will vary
slightly, depending upon the employment history of the business. Once in business long
enough, a tax rate can be established based upon the employer’s experience with benefit
charges (employees who have drawn unemployment) and taxable payroll.
         Taxes are deducted in the same manner as federal taxes, each pay period and filed
with the applicable state on a monthly basis, just as federal depositors. Many accounting
firms, however, recommend a weekly depositor account, so that the employer is not hit
with extremely large taxes due. Most states will also require a quarterly information
report comparable to the 941 federal forms and referenced in a like manner. Withholding
rates on the state level are much lower than the federal rates and there are also limits of
liability. Once a particular level is reached in income, just as with social security the tax
rate may be reduced or sometimes eliminated.
         Small businesses operating in one more than one state may find themselves liable
for payroll taxes in each state of operation. If you operate in multiple states, but do not
maintain a permanent address, you should contact each state of operation to determine
your liability and setup the necessary accounts for deductions. Quite often accountants
that handle state taxes in your area will be aware of each state’s filing requirements and
be able to assist you in your filing requirement needs.
         The most important concern, as a small business, that you will have on a state
level is the unemployment tax that you are assessed. Unemployment compensation is
administered on the state level, and can therefore tremendously affect your tax liability.
Your tax rating determines your tax liability, and new businesses are given a standard
rating until such time has elapsed with operations and paid benefits to assess an
individual rating based on employee benefit charges and gross taxable payroll.
         Local taxes are an even further extension of the employer withholding process,
and businesses that operate in a particular state will generally be able to access
information about a particular locality via their state’s revenue office. Taxes withheld on
the local level will not usually require a separate form, since local government entities
will generally require that you file a copy of the state form with their local offices. They
do not have the resources to develop separate forms and reporting procedures, and any
monies due a local government municipality are forwarded from the state revenue
department. Employers will file W-2 information and the information return
accompanying W-2’s with the IRS, the state agency, and then with any needed local
municipality. There is no social security or Medicare tax withheld at state or local level,
there are usually no unemployment taxes withheld at the local level. Businesses are
liable for withholding and reporting of the wages earned by each employee, and the
timely filing of such withholding and reporting just with the federal and state agencies.
        Local tax rates are substantially lower than those of the state level, and sometimes
are referred to as a permit or license taxes. Some cities charge a flat fee for employees to
come into their city and work, and this is especially so if they reside outside the city
limits or in another city altogether.
        Small businesses can refer to individual state requirements via the Department of
Revenue, Department of Industrial Relations, Employment offices, or Small Business
Administration for direction and assistance in complying with all the necessary state and
local laws. If any additional information is needed, it may be obtained thru the IRS
website at www.irs.gov . There are numerous publications that provide direction and
instructions for small businesses; among them are IRS Publication 15, Circular E
Employers Tax Guide, and links to individual state and local websites.

				
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posted:7/8/2011
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