The beauty industry is diverse and filled with a variety of businesses that are structured differently. Some individuals working in the beauty industry consider themselves self-employed, while others are independent contractors. The beauty industry is also made up of many small businesses – think of your local salon or spa; as well as large corporations – think of some of the most easily recognizable cosmetic companies.
Diversity is a wonderful thing, and of course, this is a big component of what makes the beauty and cosmetic industry so dynamic. However, when it comes to tax requirements this can get complicated, and it can be easy to color outside the lines.
This article will provide an overview of one of the most daunting types of IRS tax requirements, reporting payroll taxes quarterly on Form 941. We’ll be focusing on the different business types that make up the beauty industry and what kind of payroll tax forms apply to them.
How are Freelancers in the Beauty Industry Taxed?
The beauty industry comprises many different types of businesses, as well as individuals who consider themselves to be ‘Self-employed’ and are classified as independent contractors. Some examples of this would be beauty consultants, freelance makeup artists, individuals who work specifically in the sales of cosmetic products, and even stylists who rent out space in a spa or salon.
The contracts that independent contractors and freelancers make with the businesses they perform services for determine how the IRS classifies them, and how the businesses that hire them will need to treat them for tax purposes.
If a business works with a stylist, consultant, etc. and there is no employment contract, the individual is considered an independent contractor. This means that while they perform work for a business, they are doing so on their own terms. They haven’t signed an employment agreement or shared a Form W-4, and are not a permanent fixture on the business’s payroll.
In terms of payroll, businesses are not required to withhold any taxes from their independent contractors’ wages. Whereas they must do this with an employee’s wages.
Knowing the distinction between an employee and an independent contractor/freelancer is crucial for business owners, as this will dictate the forms that they must file for this individual to maintain their compliance with the IRS.
What if You’re a Self-Employed Beauty Consultant?
Some individuals may be freelancers, however, this isn’t the only way to ‘be your own boss in the beauty industry’. Many consultants and stylists have their own business. If your business is a Sole Proprietorship, you are required to make IRS deposits and report payroll taxes.
How are Businesses Structured in the Beauty Industry?
Much like in every industry, businesses are structured in a way that makes the most sense for the business owner, and the services they plan to provide to their customers. Many small businesses in the beauty industry are set up as Limited Liability Companies (LLC).
This type of business structure works for the owner if they are creating a single-member LLC or even for a group of partners. This business model allows them to conduct their business without the risk of being personally liable.
Many larger businesses may be set up as corporate entities, such as an S-corporation or a C-corporation. However, regardless of the way a company is taxed, its employees will generally be taxed the same by the IRS, meaning their employer will be required to withhold Medicare, Social Security, and income taxes from their wages.
How can a Business Determine if They Must File Form 941?
This will depend completely on whether or not the business has employees. Businesses that have employees, and pay them wages that are subject to withholding of income, social security, and Medicare taxes must report this information to the IRS.
Unless otherwise approved by the IRS, this should be done by filing Form 941 on a quarterly basis for the entire lifetime of the business. There are only a few exceptions to this rule, the main one being for seasonal employers. Businesses that only operate in certain quarters each year are only required to report for these quarters.
What Information is Required on Form 941?
The Form 941 provides the IRS with an overview of the wages, tips, and compensation that your business pays to employees throughout the quarter. It also gives them an overview of your business’ tax liability and deposits (yes, there are two different things). This helps them verify that you are withholding and depositing the correct amounts. If you are the only employee of your own business and your wages meet the requirements for e-filing Form 941, you may be required to file this form and make tax deposits to the IRS.
When are the Deadlines for Filing Form 941?
Since this is a quarterly form, it has four different 941 deadlines each year as follows.
First Quarter Deadline (January, February, March) – April 30th
Second Quarter Deadline (April, May, June) – July 31st
Third Quarter Deadline (July, August, September) – October 31st
Fourth Quarter Deadline (October, November, December) – January 31st
The deadline is always the last day of the next month following the end of the quarter. Whenever a quarterly deadline falls on the weekend or a federal holiday, the next business day automatically becomes the deadline to file.
Are there other IRS Payroll Tax Forms Required?
Yes, there are other payroll tax forms that the IRS requires from businesses. Some are in addition to 941 Form, while others are filed by specific employers instead of Form 941, here’s a quick overview:
Form 940– Employer’s Annual Federal Unemployment (FUTA) Tax Return.
*This form is filed in addition to Form 941 if it applies to your business.
FUTA taxes are paid into the federal unemployment fund which provides unemployment relief to unemployed workers.
Employers that meet these IRS requirements are generally required to file:
If they paid $1500 in wages to employees in any quarter of the past 2 calendar years.
You had one or more full-time, part-time, or seasonal employees for at least part of a day in 20 or more different weeks in 2022 or in 2023. This doesn’t apply to businesses that are partnerships.
This is used to report employment taxes. It is specifically for small business owners to report annual federal income tax & FICA tax with the IRS. Small employers with an annual liability of $1,000 or less for Social Security, Medicare, and federal income tax can file annual information returns instead of the quarterly form 941.
Form 945, Annual Return of Withheld Federal Income Tax *This form is filed in addition to Form 941 if it applies to your business. This form is used to report tax withheld under backup withholding requirements from all non-employees, independent contractors, or freelancers.
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