There are four major types of federal taxes that a business must pay. These include income tax, self-employment tax, employment tax, and excise tax. Each state also requires that businesses pay certain taxes. Read on for descriptions of each type of federal tax.
If your business is not a partnership, you must file an annual income tax return. If your business is a partnership, you’ll have to file an information return. Businesses incorporating the withholding method of tax payment pay the taxes as they earn income. Businesses that pay estimated taxes are able to pay the taxes when filing a federal income tax return. For more information on income tax, refer to Publication 583 of the Internal Revenue Service.
A self-employed person is defined by the IRS as, “…one who carries on a trade or business as a sole proprietor or independent contractor, a member of a partnership that carries on a trade or business, or a person who is otherwise in business for themselves.” These taxes are imposed by the IRS to contribute to Medicare and Social Security of people who work for themselves. This is beneficial to some taxpayers because it provides them with benefits for disability, retirement, and hospital insurance. In case of the death of the payee, it also pays benefits to a survivor. A self-employment tax is 15.3 percent, with 12.4 percent of it going to social security.
Employers have to pay employment taxes to cover Social Security and Medicare taxes, federal income tax withholding, and federal unemployment tax for employees. Half of the Social Security and Medicare tax expenses are paid for by the employer out of pocket, while the other half is deducted from the employees’ paycheck. FUTA costs are covered entirely by the employer. An employer can pay employment taxes via electronic deposit, check, money order, or cash. Businesses are also required by states to pay state employment taxes that cover unemployment insurance and workers compensation.
If your business does any of the following, you may have to pay an excise tax.
- Manufacture or sell certain products.
- Operate certain kinds of businesses.
- Use various kinds of equipment, facilities, or products.
- Receive payment for certain services.
These taxes include environmental taxes, communications and air transportation taxes, fuel taxes, and taxes on the first retail sale of heavy trucks, trailer and tractors.