WHAT TO KNOW ABOUT EMPLOYMENT TAXES IF YOU ARE AN EMPLOYER

If you’re a business owner, the Internal Revenue Service (IRS) wants you to not only pay your company’s share of income, but also to withhold the appropriate taxes for your workers.

According to the IRS, the responsibility for raising and remitting withholding taxes to the Internal Revenue Service lies with both the boss and the employee.

Most of the time, the employer withholds these taxes on behalf of their workers; but, if the employer does not do so, even if the employee is self-employed, it is the employee’s duty to pay these withholding taxes. 

Per the Federal Tax Deposit Requirements, employers shall disclose payroll and job taxes withheld from their workers on an Employer’s Quarterly Federal Tax Return (Form 941) and deposit these taxes in full to an approved bank or financial institution. Employers are also responsible for filing and depositing FUTA returns on a yearly basis.

Employers who intentionally refuse to pay employment taxes can face criminal and civil penalties if they do not follow the employment tax laws.

Jobs taxes come in a variety of forms. As part of your income taxes, you’ll have to deduct, file forms with the IRS, and remit all of those taxes on behalf of your employers, and you’ll have to add to each of them as well. 

What are the employment taxes? 

The IRS employment taxes are taxes that you as an employer, and your employees have to pay to federal agencies. You also might be responsible for paying state taxes, that includes income and for unemployment. 

Federal Income Tax

Employers are required to exempt federal income tax from their employers’ salaries in most cases. Use the employee’s Form W-4, the appropriate process, and the appropriate withholding table mentioned in Publication 15-T, Federal Income Tax Withholding Methods, to find out how much tax to withhold.

Each employee’s federal income tax withholding is determined for each pay period. You’ll need the employee’s total salary for the pay period, as well as the specifics on the W-4, to determine federal income tax withholding. You’ll still require the IRS’s most recent Publication 15: Employer’s Tax Guide.

Your withholdings must be deposited. The deposit conditions, as outlined in Publication 15, differ depending on your company and the volume withheld.

State Income Tax Withholding

Most states levy an income tax and mandate employers to deduct it from workers’ paychecks. There are a few states that have no income tax, while some pay tax on other forms of income, such as equity dividends, but not on work income. Some states use Type W-4 from the federal government, and others have their own. 

Social Security and Medicare Taxes

Employers are required to exclude a portion of social security and Medicare taxes from their employers’ income, and they must also pay a matching fee. Using the employee’s Form W-4 and the strategies mentioned in Publication 15, Employer’s Tax Guide and Publication 15-A, Employer’s Supplemental Tax Guide to figure out how much tax to withhold.

For 2020 and 2021, the social security wage base cap is $137,700 and $142,800, respectively. For these years, the employee social security tax limit is 6.2 percent. 

Employers must collect the Additional Medicare Tax in addition to usual FICA taxes if an employee’s gross taxable salary exceeds $200,000. The extra tax is equal to 0.9 percent of the employee’s taxable salary. As a result, if the employee’s payroll reaches $200,000, you must receive 2.35 percent of the employee’s salary for the remainder of the year for Medicare.

Workers’ Compensation Benefit Funds

Employers are required to contribute to state-run accounts that offer insurance to workers who become sick or injured as a result of their employment. State workers’ compensation regulations restrict these payments, and are funded by workplace donations to state workers’ compensation accounts.

Federal Unemployment (FUTA) Tax

Employers are required to register and pay FUTA tax in addition to federal income tax, social security, and Medicare taxes. Just your own assets are used to pay the FUTA bill. Employees are not required to pay this bill, nor is it deducted from their pay. For more information on the FUTA levy, see Publication 15, Employer’s Tax Guide, and Publication 15-A, Employer’s Supplemental Tax Guide.

The federal unemployment tax is 6% on the first $7,000 of gross wages earned by each employee per pay period.

Many states mandate you to enroll in the state unemployment tax package and pay state unemployment taxes in addition to federal unemployment taxes.

If your state has an unemployment levy, you could be eligible for a federal tax deduction of up to 5.4 percent. The effective rate is approximately 0.6 percent.

Dealing with taxes might be difficult. It’s always better to have an expert by your side to help you. If you need help filling out your taxes or any other accountancy services, feel free to reach out to us.