Three Common Employer Payroll Tax Questions

March 11, 2019
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Category: Compliance, Payroll

employer payroll tax

If you have at least one employee on your payroll, you’re responsible for paying employer payroll tax on a yearly basis. This might at first seem like a basic part of being an employer; however, these tax forms must be completed with a high level of accuracy. To make sure you’re checking all the boxes, here’s what you need to know about employer payroll tax.

What payroll taxes are employers required to pay?

To report payroll, employers must calculate gross monthly wage earnings for each employee. Additionally, it’s important to keep track of various deductions to ensure that net pay is accurately calculated. Employers are responsible for reporting their payroll by making a number of federal tax deposits throughout the year.

These include the following:

  • Wage and Tax Statements (Form W-2)
  • Annual federal unemployment tax return (Form 940 or 940EZ)
  • Employer’s quarterly payroll tax return (Form 941)
  • Annual Return of Withheld Federal Income Tax (Form 945)

Which taxes are only paid by the employer?

Some taxes are shared by both the employee and their employer. For example, the Federal Insurance Contributions Act (FICA) consists of both Social Security and Medicare taxes. Each party pays half of these taxes adding up to a total of 15.3 percent paid per each employee.

Employers are responsible for paying these taxes in addition to state unemployment and federal unemployment taxes. At the state level, these taxes are used to pay unemployment benefits to state workers, with the rates being determined by the state. The federal unemployment taxes are administered to federal job and insurance services.

How much does the employer pay in payroll taxes?

The amount that a business pays in employer payroll tax depends on a number of factors. For example, state and local tax agencies might also require certain employer taxes to be filed, which can cause an increase or decrease in your employer tax depending on the location. These state taxes go towards things like recreation, healthcare, transportation, local safety, and more. Nine states do not have an income tax on wages, and these include Texas, Florida, Washington, Nevada, Tennessee, Wyoming, New Hampshire, South Dakota, and Alaska.

How much does a company pay in employer payroll tax for each employee?

Tax rates can fluctuate over time, so it’s important to stay updated with the most recent changes. In 2018, the Social Security tax rate requires that employers pay 6.2% in taxes on the first $132,900 of wages paid. The Medicare tax rate is much lower, clocking in at 1.45% for the first round of $200,000 of wages. For wages paid above $200,000, employers expect 2.35% for wages.

As discussed, state taxes can vary greatly depending on where you live, so this may or may not apply to you. Moreover, payroll taxes must be filed correctly to avoid penalties. This means that they must be paid on time and in the correct amount. They also must be submitted using the proper filing system.

About

As a professional copywriter, Dan produces strategic marketing content for startups, digital agencies, and established brands. He helps organizations tell stories, achieve online presence, and builds brands that communicate with their customers. Dan is also a regular contributor to Forbes. He started writing after his first professional role as a health promotions coordinator for a local family physicians office.

Category: Compliance, Payroll


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