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Payroll Taxes

Payroll taxes must be withheld from an employee's paycheck as required by law. Employers must remit these withholdings over to various tax agencies. Usually, employers calculate net pay by taking the gross pay and applying applicable payroll deductions. Although it is a simple concept, calculating various payroll deductions requires knowledge of all applicable Federal and State laws and requires detail-oriented accuracy. Payroll tax deductions include Federal income tax withholding, Social Security tax withholding, Medicare tax withholding, State income tax withholding, and local tax withholdings such as city, county, or school district taxes, state disability or unemployment insurance.

Find out more information about payroll taxes by contacting a payroll professional. Find a local payroll tax professional in your area.

According to the IRS Publication 15, Employer’s Tax Guide, an employer’s payroll requirements may include the following: reporting their payroll tax obligations, depositing payroll taxes, making federal tax deposits, filing an annual federal unemployment tax return (Form 940 or 940EZ), filing a quarterly payroll tax return (Form 941), filing an annual Return of Withheld Federal Income Tax (Form 945), creating Wage and Tax Statements (Form W-2), and filing reports with various state and local agencies.

These are some of the areas associated with payroll taxes:

  • Employer Requirements
  • Federal Income Tax
  • Social Security Tax
  • Medicare Tax
  • FICA Tax
  • FUTA
  • SUTA Unemployment Tax
In most cases, employers will deduct income taxes from the employee’s paychecks to contribute towards their personal income tax liability due at the end of the year.  Every employee is required to fill out a form W-4, Employee's Withholding Allowance Certificate, upon the beginning of their employment with a company.  A W-4 is needed to know how much federal income tax to withhold from an employee’s wages.  The IRS has created a Withholding Calculator on their website at www.irs.gov/individuals to help determine how many withholding allowances a person should claim.

FICA Tax is composed of Medicare Tax and Social Security Tax.  According to the IRS, the Federal Insurance Contributions Act (FICA) supports a federal system of old-age, survivors, disability, and hospital insurance. The old-age, survivors, and disability insurance portion is funded by the social security tax and the hospital insurance portion is funded by the Medicare tax. Employers are required to withhold social security and Medicare taxes from employees' wages and also pay the employer's share of these taxes. Social security and Medicare taxes have different rates and can change yearly.  Social security tax has a wage base limit which is the maximum wage subject to the tax for the year.

Employers are required to file federal and state unemployment taxes on a quarterly basis. FUTA and SUTA taxes are forms of payroll tax that are deducted from the wages of all W-2 employees. FUTA is an acronym for the Federal Unemployment Tax Act and SUTA stands for State Unemployment Tax Authority. It is a payroll tax that each state requires employers to pay for their workers.  Calculating these unemployment taxes from employee payrolls is subject to IRS rules and varies by state.  Each state’s unemployment office can be found by looking in IRS Publication 926.

Need help with W-2 and payroll issues for your business? Locate a local payroll tax professional.