In the case of employer’s taxes, employers must deposit employment taxes and also need to report these taxes every quarter in most cases. Employment taxes include withholding from employees’ salaries to cover the income taxes and the employee’s share of Medicare taxes (FICA) and Social Security. This includes the employers’ share of federal and state unemployment taxes and FICA. In case of any failure to properly withhold and deposit the taxes can result in major penalties for the employers.
What Do You Mean By Employment Taxes?
Employment taxes are state & federal taxes that are related to an employee’s taxable compensation. They include:
Withholding of Income tax based on information provided by an employee on Form W-4. This tax is paid only by an employee.
FICA stands for Federal Insurance Contributions Act. This tax has two components; one is the Social Security tax, and another one is Medicare taxes. Both these taxes are paid equally by employers and employees. The Social Security portion mainly concerns Old Age, Disability Insurance, survivors, or OASDI. It benefits dependents like spouses, retirees, former spouses, dependent children in some complex cases, and disabled individuals under retirement age.
Whereas the Medicare portion enables those, who are around 65 or even older. But in special cases, it is also applicable to others to qualify for Part A Medicare coverage with no additional price, plus getting coverage through Parts B, C, and D for an additional premium.
FUTA, which stands for Federal Unemployment Tax Act, is paid exclusively by employers.
State unemployment tax is exclusively paid by employers, although a few states require some extent of employee contributions.
Factors That employers should know about employer tax responsibilities?
Employers need to maintain payroll taxes by fulfilling several mandatory tasks :
● Figure out techniques of income tax withholding and any other necessary employment taxes.
● You must deposit all employment taxes timely by maintaining a set deposit schedule (small employers are an exception).
● You can report quarterly about their employment taxes which covers income tax withholding and FICA (with an annual report for a small employer), and report annually to employees and the Social Security Administration about employee tax payments. They also have annual FUTA reporting. And there is state-level reporting.
● Sometimes an employer is also required to withhold some different amounts from employees’ salaries, such as elective deferral amounts for employee contributions to 401(k) plans and flexible spending accounts or for the garnishment to cover family and child support. These are additional withholding amounts that will not figure into the employment taxes; they are merely extra.
Which Taxes Are Mandatory Payroll Taxes?
- Federal Income Tax
The income tax withheld from employees’ wages is designed to cover what they will owe in federal income tax for any financial year. This includes employee income taxes, Medicare, and social security taxes. It also includes an additional Medicare tax in special cases for certain employees.
- Social Security Taxes
Social Security and Medicare taxes contribute to FICA, a special tax imposed on employers and employees. It is to pay for Social Security benefits and Medicare benefits. Both the employees and employers each pay around 6.2% of compensation up to an annual wage base limit for the Social Security portion, plus they have to pay 1.45% of all compensation for the Medicare portion.
- Federal Unemployment Tax Act (FUTA)
Another vital tax is paid by the employer only as it offers unemployment benefits.
- State Unemployment Tax
It is an unemployment benefit provided by the state to eligible workers who are involuntarily terminated. Therefore states impose unemployment tax on employers to fund this liability.
- Additional Taxes
When the compensation from an employer exceeds $200,000 to an employee, the employer must withhold an additional amount for the additional Medicare tax.
Hope you get a clear idea of employer taxes and the associated factors. You can contact us for further queries to get the necessary help.