"payroll tax"

Requirements regarding withholding payroll taxes are something that every business owner should be familiar with, particularly businesses which handle their own payroll internally (as opposed to outsourcing to a payroll company). Employers are almost always required to withhold taxes from employees’ salaries, wages, and other compensation, such as commissions or bonuses.

While many people think of paying income taxes as what they do when they file tax returns by mid-April of each year, income taxes are actually considered a “pay as you go” tax. The tax returns at the end of the year then adjust the withholdings calculation depending on various other considerations such as deductions, marital status, and other income.

The employer withholds a certain amount of taxes from each paycheck which the employer is then required to turnover to the government.

There are both federal withholdings and New Jersey state withholdings.
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Businesses with any New Jersey employees are responsible for withholding and paying income taxes, Medicare taxes, and Social Security, and paying payroll taxes on wages paid to their employees. However, in general, the same businesses do not have to do so when hiring independent contractors.

Therefore, it may be tempting for a business to classify all workers as independent contractors to avoid payments. However, the Internal Revenue Service and New Jersey Division of Taxation have stringent regulations to ensure that businesses correctly classify their workers. The IRS imposes significant penalties on businesses which have misclassified their workers as independent contractors.

A worker is an independent contractor if the “employer” has the right to direct only the result, but not the way in which the worker performs her job. For example, if a business hires a New Jersey attorney to sue another company for breach of a contract, the business does not direct the attorney on how to argue the case, what motions to file, etc. The client educates the attorney about the dispute and asks the attorney to work towards a certain result (recovering lost profits). Therefore, this attorney is a New Jersey independent contractor, not an employee.
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Articles Tagged with “payroll tax”

Payroll Withholding Tax Basics for Both Employers and Employees

Employee or Independent Contractor? New Jersey Business Taxpayers Can Correct the Misclassification of Workers with Minimal Tax Liability