Which Payroll Taxes Are Paid By Employers?

Table of Contents

1. What payroll taxes do employers have to pay?

2. How to figure out the withholdings from federal payroll taxes

3. Additional payroll tax obligations for employers

What payroll taxes do employers have to pay?

Even with help, paying staff can be difficult for business owners. Most likely, they already use software or a bookkeeper for accounting help. People who wish to do payroll on their own and want to stay clear of payroll errors need to be fully aware of employer payroll taxes.

The taxes firms pay when they hire employees are known as employer payroll taxes. Certain taxes are handled by the employer alone, while others are paid by the employee and the employer together. Social Security, Medicare, and unemployment taxes are a few examples.

Every pay month, employers are often required to pay the below payroll taxes:

Social Security

The 12.4% Social Security tax rate is split between the employer and the employee, with the employee paying half of it. The wage base level for this tax is $168,600 per year.

Medicare

At 2.9%, the Medicare tax rate is equally funded by employees and employers. A 0.9% increase is applicable to staff members making over $200,000 annually. Only employees are required to pay the extra Medicare tax.

State tax on unemployment

Employers looking for particular unemployment tax rates can contact their state authorities. This tax is often solely paid by employers, although in some states, employees are also required to pay.

Federal unemployment tax

Based on the amount of state unemployment tax paid by the employer, the federal unemployment tax rate varies from 0.6 to 6%. Employers are the only ones who pay it.

The CA employer defense attorney for wage and hour claims can assist businesses in navigating payroll tax requirements.

How to figure out the withholdings from federal payroll taxes

The federal income tax calculation is somewhat more complicated than that of the flat rate FICA taxes. Employers may apply the IRS wage bracket technique in the following ways to ascertain what to hold back for a worker who completes the updated 2020 Form W-4 and earns up to $100,000 annually:

Modify the employee’s wage amount

Following the completion of Step 4 on Form W-4 by employees, wage adjustments can be required. This can be accomplished by adding any extra money to the total salary, dividing it by the number of pay periods, and removing any revenue that isn’t from an additional job. Next, divide this amount by the entire number of pay periods and deduct it from the employee’s total wages if they are claiming deductions other than the standard deduction.

Determine the approximate withholding amount

Use the tables displaying wage brackets found in Publication 15-T to determine the employees’ approximate withholding amounts following wage adjustments. Compare the different filing statuses in the six columns on the right with the modified pay ranges in the two columns on the left. Therefore, the approximate withholding amount is $60 if a worker files as a head of household with regular withholding and makes an adjusted weekly pay of $900.

Take tax credits into consideration

Before the IRS streamlined the procedure in 2020, employees could submit claims for allowances for kids and any dependents on their Form W4. Employees now get a total credit value for any dependents on Step 3 of Form W4. This sum should be divided by the number of pay periods, and the result should be deducted from the estimated withholding amount.

Add up the total amount that was withheld

Workers can choose how much extra tax to withhold each pay month by completing Step 4(c) of Form W-4 with the desired amount. To the estimated withholding amount, add this value.

Be aware that different calculating techniques may be used based on the employee’s overall income. Individuals with annual incomes exceeding $100,000 might need to utilize the IRS percentage technique rather than the pay bracket method. For further details, refer to IRS publication 15-T.

An example of payroll tax withholding

Assume Bill, an employee of a company, is married, has two kids, and a wife who works. If he makes $1,000 a week, how would the federal tax withholding be calculated for each pay period?

Check first to see if Bill’s pay has to be changed. Given that he has opted for the standard deduction and is not claiming any supplementary income from dividends, investments, or retirement, his wages remain $1000.

Examine the weekly pay period bracket chart on 15-T as your second step. The tentative withholding amount for married couples filing together with the Form W-4 Step 2 checkbox withholding option is $88.

Third, don’t forget about tax credits. Bill could receive $4000 in tax credits as he has two kids. Since he gets paid every week, divide this total by 52, then deduct the result from the tentative withholding amount of $88. $11.08 is the outcome.

Finally, divide the amount by 52 if Bill’s Form W-4 requested an extra $1000 to be withheld from his taxes annually. This comes out to $19.23, which is added to $11.08 to get a total withholding amount every pay period of $30.31.

Learn more:

Additional payroll tax obligations for employers

Businesses may soon be required to submit quarterly tax returns with the local, state, and federal governments when tax money is deducted from employees’ paychecks (as well as employer contributions). IRS Form 941, Employer’s Quarterly Federal Tax Return, must typically be filed by the final day of the month that follows the end of the quarter. Thus, the first Form 941 would be due on April 30 if the first quarter of the year ends on March 31. The Electronic Federal Tax Payment System (EFTPS) is a payment method available.

Employers normally have to provide independent contractors with Forms 1099-MISC and employees with Forms W-2 at the end of the year. Additionally, they might need to submit three more forms:

Form 1096: a transmittal and summary form that is used in conjunction with other IRS forms
Form W-3: used to submit to the Social Security Administration the total W-2 wages of all employees.
Form 944: Employer taxes are filed annually rather than on a quarterly basis.

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