Payroll Taxes and Employer Responsibilities

In the United States, FICA stands for Federal Insurance Contribution Act and funds Medicare and Social Security. Payroll taxes look different from nation to nation, but a simple definition is that these taxes are imposed on either employees or employers (or both!). Typically, the amount paid by the employer or the employee is based on a percentage of the employee’s salary.

• You must be able to supply a hardcopy of an electronic Form W-4.
• FUTA payroll taxes are the sole responsibility of the business owner.
• If you are an employee, your employer probably withholds income tax from your pay.
• Payroll taxes include the employment taxes you and your employees pay for federal and state programs, including Social Security, Medicare, unemployment insurance and disability benefits.
• Some payroll taxes, like Social Security tax, have both an employee and employer portion.
• Other payroll taxes, like federal income tax, are an employee-only tax.

If the employee doesn’t give you a valid one, withhold taxes as if the employee is single or married filing separately with no other entries in step 2, 3, and 4. However, if you have an earlier Form W-4 for this employee that’s valid, withhold as you did before. Payroll taxes are the payments you as an employer make when you run payroll for employees.

Tax Withholding

If you paid more than $600 to an independent contractor during a tax year, you are required to report those payments annually to the IRS and the contractor using Form 1099-NEC. Because each state receives a credit to cover 5.4% of FUTA payments, employers effectively pay only 0.6% annually into FUTA. It covers federal unemployment insurance paid by the federal government to state unemployment agencies. Employee and employer contributions to FICA combined total 15.3% of gross employee wages up to $137,700.

The Social Security tax rate is assessed on all types of income, including wages, salaries, and bonuses, but there’s a cap. The maximum amount of income subject to Social Security tax is $147,000. which payroll taxes are the employees responsibility and which are the employers responsibility Payroll taxes are those taxes you have to consider when you pay employees. Some of these taxes are withheld from employee pay, and others are your responsibility as an employer.

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What many people don’t realize is that the employees also have a responsibility to pay payroll taxes. Most people don’t realize this because these taxes are withheld from their paycheck by their employer and the employer takes care of making sure they get paid. In this blog we will cover the general payroll obligations of employers and employees. In general, you must deposit federal income tax withheld as well as the employer and employee social security and Medicare taxes and FUTA taxes.

You are responsible for withholding the amount that your employees choose via their W-4. They will provide you with their marital status, the number of allowances they can take, and then any additional funds they want to have withheld. You use those numbers to determine the exact amount withheld from their salary.

Understanding Employment Taxes

The IRS has a pay-as-you-go system for employment taxes, so you don’t just pay your taxes once per year. You have to periodically deposit the employer’s share of FICA taxes and the taxes that you’ve withheld from your employees’ paychecks. Businesses have to report FICA taxes on a quarterly basis using IRS Form 941. This form is for reporting information about your business, like the number of employees you have and the amounts you’ve withheld from their paychecks for income taxes, social security and Medicare. This form is also used to report the employer’s portion of social security and Medicare FICA taxes. Form 941 is due on the last day of the month following the end of each quarter (e.g. the form is due April 30 for the period covering January 1 to March 31).

• Diana is a seasoned human resources leader who has held many roles in the industry.
• At Complete Payroll, we are experts in setting up and maintaining payroll tax systems.
• There is no wage base for Medicare — all covered wages are subject to Medicare tax.
• In rare cases, some employees might be exempt from federal income tax.
• You may be subject to further payroll taxes based on the Zip code, county or municipality where your business is based.
• To learn more about FICA tax deposit schedules, you can read IRS publication 15.
• We’re constantly publishing content about payroll, human resources or anything related to managing your people.

Even if it’s unintentional, you’ll still face fines for paying late, or not at all. You also face penalties for failing to send tax forms and misclassifying workers. The amount of tax you withhold and pay the government depends on wages and salaries. Fortunately, self-employed business owners can deduct half of their SECA taxes on their income tax returns. Local governments in a number of states impose a local income tax on employees.

Other Payroll Costs and Deductions

In the video below, our Tax Manager, Ashley Hamilton, explains how payroll taxes are calculated. A structured and simple overview of what employers need to know about the taxes that flow through payroll – on both the employer and employee side. If you run a small business or work in payroll, these are topics you must understand. The obligation to withhold applies only to amounts in excess of $200,000. However, once you are obligated to begin withholding the Medicare surtax, you continue to withhold it each pay period until the end of the calendar year.

Tax may also be withheld from certain other income — including pensions, bonuses, commissions, and gambling winnings. “X” forms are used to report adjustments to employment taxes and to claim refunds of overpaid employment taxes. Typically, employers are the ones who calculate this amount, but with the government’s approval. The Social Security tax (also called OASDI or Old-Age, Survivors, and Disability Insurance) is subject to a dollar limit, which is adjusted annually for inflation. However, there is no annual dollar limit for the 1.45 percent Medicare tax. And unlike the other FICA taxes, the 0.9 percent Medicare surtax is not withheld unless wages paid to an employee exceed $200,000.