Here’s What You Need to Know.
If there is one area that generates questions from our Clients more than any other, it’s payroll taxes. There’s no doubt it can be confusing! In this short video, we cover the key things you need to know… and, of course, we’re always here to answer any questions you have.
(Video transcript follows)
Payroll taxes are those taxes paid by employees and employers through the payroll process. It is solely the employer’s responsibility, not the employees’, to collect and distribute payroll taxes to the IRS. Among the additional responsibilities of the employer include correctly calculating the taxes as well as filing the payroll tax reports in a timely fashion.
U.S. Federal payroll taxes include:
• Federal income tax withholding (this amount is determined by information employees provide on form W-4)
• Taxes paid for Social Security and Medicare, and
• Federal unemployment tax
State payroll taxes may include:
• State income tax withholding
• State unemployment tax funds
• State disability funds, and
• State workers compensation funds
An employer calculates the gross pay for employees, then based on the employees’ gross pay, deducts Federal income tax, Social Security tax, Medicare tax, State income tax, State unemployment, disability and workers compensation tax.
For example, let’s say the gross pay is $1,000. Your federal income tax could be $120.00. Social Security is $62.00 from both the employee and the employer. Medicare is $14.50 for both. State income tax could be $20.00. Then the employer pays $6.00 for federal unemployment and $27.00 for state unemployment. The government receives $326.00 and the employee receives a net paycheck of $783.50
The Social Security portion of the tax is capped each year at a maximum wage subject to Social Security. There is no wage limit for Medicare tax. All covered wages and salaries are subject to Medicare tax. Finally, you must make payments to the IRS either monthly or semi-weekly based on the size of your total employee payroll, and you must report on payroll taxes quarterly using form 941.