He sez; Either I find a cheap easy way to calculate my employees taxes or I pay them under the table?

Question

I have a friend who's been running a very small wholesale operation in IL for about 2 years, and has been paying the 3-5 people that work under him in cash. He honestly wants to go legit but doesnt want to hire an accountant just to pay state local and federal taxes in other words pay money just to pay money. What options are available to him that are simple, easy and relatively cheap if not free.

Also I posted this question for advise and not to get preached to. My friend is already aware of all the legal mumbojumbo and what not of cheating on your taxes. So please if your going to post; offer actual advise not just name calling - other wise you can just sit on it (especially if your attractive!)

Answer 1

There are services that do payroll without charging an arm and a leg - check into Paychex.

He can buy software for his PC to do the calculations.

Answer 2

the payroll services will calculate everything - all you have to do is call in the hours and send them a check for the total they give you - which will include all taxes

Answer 3

With the restrictions given in your question...I would suggest leasing employees (not talking about a temp agency). This is almost the same as a payroll company except the employees actually work for the payroll company.

Usually, this will lower the percentage rate on unemployment taxes and Workman's Comp. Insurance. In many cases this will help offset the cost of the service they provide.

Further, he would not have to bother with any employment tax forms.

Hope this helps

Answer 4

I worked for a small business like that before. You can get the book that tells you the percentages from the irs. Sit down with a calculator and do it in a few minutes.

Answer 5

Has he by any chance been filing a 1099 with the IRS at the end of the year showing that he paid these people?  Technically, I would say he's been treating them as independent contractors and expecting them to take care of their own taxes.  A business is supposed to file a 1099 for anyone that earns more than $600 a year.  That's a possible option for him.  Tell them that they are independent contractors and required to pay their own taxes and he's going to file a 1099 at the end of the year.  He'll have to fill out copies for each employee and give them a copy.  This will cause his employees to pay more on their taxes though.  There's an IRS publication that tells the difference in an independent contractor and an employee.  He might want to read it before he decides.  If he wants to start paying federal, social security, medicare, unemployment, etc. I would recommend he buy a copy of Quickbooks for his computer.  Quickbooks will probably cost a couple hundred dollars and I think he has to pay a yearly subscription in order to get tax updates but it's pretty easy to use and it will figure all of the taxes that need to be held out.  He'll enter his employees information, like filing status, number of exemptions, the state they are in, etc. and then when he does payroll it will figure all of the withholding for federal and state.  At the end of the month or quarter he can click on pay liabilities and it will have added up how much he needs to pay in taxes, unemployment, worker's comp, etc.  He should also go to his state's web site and find out what all he is expected to pay and how often.  Some things are due monthly and some quarterly.  Different states have different taxes and stuff.