Social Security and Medicare Tax. The Social Security tax and Medicare tax are collected from both employers and employees. For 2024 the combined total Social Security and Medicare tax rate will be 15.3 percent of the first $168,600 of wages paid. Additional Medicare Tax of 0.9 percent is imposed on earnings above a threshold amount of $250,000 for married filing jointly filers; $125,000 for a married filing separately; $200,000 for all other taxpayers. Social Security and Medicare taxes other than the additional 0.9 percent Medicare Tax are paid by both the employer and the employee. The additional 0.9 percent Medicare Tax is paid solely by the employee. Social Security and Medicare taxes are not required for a sole proprietor’s children under age 18 who work in the sole proprietorship. Federal Unemployment Tax. Employers generally are liable for both federal and Minnesota unemployment taxes. The federal unemployment tax rate is 6.0 percent of the first $7,000 in wages paid each employee. A credit of up to 5.4 percent may be allowed for state unemployment taxes paid for a normal net tax of 0.6 percent. This credit is reduced during periods where the state unemployment insurance trust fund has borrowed from the federal treasury and has not fully repaid the loan. Wages paid to a spouse or child under age 21 who works in a sole proprietorship owned by the spouse or parent are not subject to federal unemployment taxes; other exceptions also may apply. Editor’s note : changes in state unemployment tax law may change your FUTA liability. Timely payment of state unemployment tax creates an offset credit on FUTA tax liability. Contact a tax advisor for more information. Minnesota Unemployment Tax. State unemployment tax rates are discussed in the business tax section of this Guide. Different rates apply to new businesses and experience rated businesses. Wages paid by a sole proprietor for services performed by their parent, spouse or child under the age of 18 are not subject to Minnesota unemployment taxes. Wages paid to corporate officers or members of an LLC who own 25 percent or more of the corporation or LLC are not subject to Minnesota unemployment tax. Other exceptions also may apply. Workers’ Compensation Insurance. Workers’ compensation insurance rates depend on the nature of the work performed by the employee and the employer’s experience rating. A sole proprietor or partner may elect to obtain workers’ compensation coverage for an employee who is a spouse, parent or child of the owner, but coverage for these family employees is not required. In addition, certain closely held corporations may elect coverage for executive officers who own at least 25 percent of the stock of the corporation. Retirement Benefit Plans Retirement benefit plans include qualified employee benefit plans, nonexempt trusts and annuity plans, self-employed retirement plans, individual retirement arrangements, and simplified employee pension plans. The tax treatment of contributions to these plans is highly technical; also there are frequent changes in tax laws that affect the treatment of those contributions. A business owner contemplating such a plan or making deductions for contributions to the plan should obtain the advice of competent counsel. Note: Whenever the term “IRA” is used in the following paragraphs, generally speaking the discussion applies to both conventional IRAs and Roth IRAs.
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