What to do with the taxes you take out of employee checks

Everyone is familiar with the process of receiving a check from your employer and having a large percentage of the check being removed for tax purposes. We've all noticed that with every check, there seems to be quite a few different types of taxes that are removed. But where do those taxes go? Once your employer takes them out, where does your money go? This process becomes even more complicated when you are the employer taking out the taxes. What do you do with the taxes taken out of employee checks? How do you know where to send it? Do you just stash it in a bank account until tax season or do you send it somewhere each month?

The first thing you need to do as an employer is apply for an EIN, which is an Employer Identification Number, from the IRS (unless you already have a number, in which case you can skip this step). An EIN is used to identify a business entity. Generally, only businesses need an EIN. You may apply for an EIN in various ways, and now you may apply onlinehttp://www.irs.gov/businesses/small/article/0,,id=102767,00.html by clicking on this website:

http://www.irs.gov/businesses/small/article/0,,id=102767,00.html

The IRS (Internal Revenue Service) offers this service for free. You must, however, check with your state to determine whether you need a state number or a charter. Your EIN is a permanent number and can be used for most of your business needs, including opening a bank account, applying for business licenses; and filing a tax return by mail. However, no matter how you apply (phone, fax, mail, or online), it will take up to two weeks before your EIN becomes part of the IRS' permanent records. You must wait until this occurs before you are able to do the following: file an electronic return, make an electronic payment, or pass an IRS Taxpayer Identification Number matching program.

Basically, your EIN is the number that your business will use to pay the withheld taxes, file the quarterly 941 and the W-2s at year end, etc. It's like your account number with the IRS. Once you have completed a payroll and withheld taxes from your employees, you won't have to set up a bank savings account for the money. You have the option of simply keeping track of the amount of taxes in your book keeping software. If, however, you think you will have trouble keeping the money set aside and not spending it, you may want to consider putting the money in a savings account.

Once you've decided how you want to save your employee tax money, you must find out when, how and how often you must deposit the amount. This is determined by the amount of taxes you with hold. The easiest way to determine this number is by looking online at www.eftps.com.

You should realize that determining payroll and taxes can be a very complex process. Unless you are 100% sure that you know and understand how to do taxes properly, you should probably consider hiring at experienced payroll person to do it for you. Or you could outsource your payroll duties to a payroll company like Paychex.

Here are a few questions to ask yourself before you decide to do your own employee taxes:
 Do I understand how to calculate FICA tax?
 Do you know what FICA tax is?
 Do you know what FICA match is and who pays it?
 Do you understand how to calculate and withhold taxes for your state and local cities?
 Do you know how to fill out a 941?
 Do you know how to do W-2 or W-3 forms at the end of the year?
If you were unable to answer any of these questions, you are probably not ready to do your own employee tax and payroll forms.

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