WorldWide Drilling Resource

44 APRIL 2014 WorldWide Drilling Resource ® Drilling Into Money Not Boring by Mark E. Battersby Overlooking Payroll Taxes Payroll taxes are the taxes levied primarily on wages and self-employment income, which every professional drilling contractor is required to withhold and/ or pay on behalf of its employees. Since federal payroll tax collections generat- ed over $845 billion in 2012, or 35% of all federal revenues, it is little wonder lawmakers and the Internal Revenue Service attach so much importance to them. A drilling contractor or business’ responsibility for payroll taxes continues even after paychecks have been issued to employees. The contractor or business is responsible for paying the employer's share of payroll taxes, for depositing tax dollars withheld from the employees' paychecks, preparing various reconcil- iation reports, accounting for the payroll expense through their financial report- ing, and filing payroll tax returns. As mentioned, payroll taxes are the state and federal taxes a drilling business, as an employer, is required to withhold and/or pay on behalf of all employees - even employee/owners and employee/ shareholders. The employer portion of payroll taxes include the following: • Social Security taxes (6.2% up to the annual maximum - $117,000 in 2014 up from $113,700 in 2013) • Medicare taxes (1.45% of wages) plus an additional levy on higher incomes • Federal unemployment taxes (FUTA) • State unemployment taxes (SUTA) • Various local tax withholdings (such as city, county, or school district taxes, state disability, or unemploy- ment insurance) As an employer, the drilling business is required to pay a matching amount of FICA taxes for employees. Self-employed individuals are responsible for the entire FICA tax rate of 15.3% (12.4% Social Security plus 2.9% Medicare). For high earners, Medicare takes a somewhat larger bite thanks to a provi- sion of the Patient Protection and Affordable Care Act. Beginning in 2013, the employee-paid portion of the Medicare FICA tax became subject to the 0.9% Additional Medicare Tax. An employer must now withhold the Additional Medicare Tax from the wages or compensation above certain thresh- old amounts it pays to an employee. Threshold amounts are $250,000 for married taxpayers who fi le jointly; $125,000 for couples filing separately; and $200,000 for single and all other taxpayers in a calendar year. Because the employment tax laws are complex and change so often it is not surprising a whopping 40% of small businesses reportedly entrust their pay- roll and payroll tax chores to a third party. The drilling contractor or business however, remains liable for withholding payroll taxes and paying them to the government. Mark Mark E. Battersby may be contacted via e-mail at admin@ worldwidedrillingresource.com & ! $ # & # " ! $ # & # & " & ! " & " $ # & & ! & " & & "! " ! & " " ! & " " ! ! ! !% $ # "! ! M i n n e s o t a W a t e r W e l l A s s o c i a t i o n 2014 Passing the gavel. Appreciation award. 2014 Dave Williams Scholarship Award. Honorary life memberships.