Glossary term
What is Payroll tax?
Short answer
Payroll tax is the tax withheld from employee pay plus the matching tax the employer pays on wages.
Payroll tax, explained for tree service owners
When you hire a groundsman or a climber as an employee, you must withhold taxes from the pay and also pay the employer share. For Social Security and Medicare, the employer share is 7.65% of most wages: 6.2% for Social Security, up to a yearly limit, plus 1.45% for Medicare. You must send these amounts on time, and mistakes can bring penalties. Many small owners use payroll help to avoid errors. Add these costs when you work out what a crew hour really costs. This is a short explanation, not tax advice. Ask an accountant about your own case.
Related terms
- Independent contractor
An independent contractor is a person who works for themselves and is paid per job, not an employee of your company.
- Form 1099
Form 1099 is a US tax form a business sends to contractors it paid, to report what they earned.
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