Nothing about small business is small. The work is constant, the goals can be daunting, and the administrative tasks are endless. Employer payroll taxes are no exception.
This can feel particularly true when it comes to understanding employer payroll taxes. Like just about anything in life, there is virtually no compensation without taxation. For small businesses and other leaders, payroll is no exception. Taxes will always be on the to-do list.
Consider this a 101 on Federal employment taxes. As a small business CEO, you may or may not manage payroll and taxes on your own. Sometimes, you’ll need to work with an accountant or an advisor through your small business payroll service provider. But it’s good to know the basic categories of payroll taxes, and how they are divided up.
First, What Are Employer Payroll Taxes?
The best place to begin is with a clear definition. Employer payroll taxes come from the money you withhold from your employee’s wages, which are then given to the federal, state, and local governments.
Now let’s get into calculating payroll taxes.
Understanding Federal Taxes
On the federal level, you’ll withhold income taxes, social security, and Medicare taxes, as well as some additional Medicare taxes. Have you ever wondered what FICA taxes are? Well, FICA taxes are just another way to refer to these social security and Medicare taxes.
The IRS’s website has a helpful and simple list of all of the different types of taxes. It’s important to note that while employee taxes for social security and Medicare are relatively simple, income taxes tend to be more complicated. As The Balance explains, employers pay 6.2% for Social Security tax, 1.45% for Medicare tax, and 0.9% for additional Medicare, but income taxes are derived from withholding tables.
The next step is preparing the W2’s and a Wage and Tax Statements, which report all payments to each of your employees throughout the past year. This is to ensure your employees are being taxed appropriately— you are not required to pay anything at this step, it’s purely documentation.
Lastly, there are two more sets of federal taxes that you’ll have to pay as an employer: federal unemployment tax and a self-employment tax. The important thing to know about federal unemployment taxes is that they are paid from your business’ funds and never withheld from your employee’s pay. Self-employment taxes will, by nature, not be applied to your employees. However, they may very well apply to business owners themselves. The IRS describes them as “similar to the social security and Medicare taxes withheld from the pay of most employees.”
The last thing to know about employer payroll taxes is that it’s the employer’s job to deposit the withheld money in a timely manner. The IRS’s Publication 15 document is where you’ll find everything you need to know about the timelines associated with depositing, which vary depending on how much money is withheld.
Want more help on various tax forms? Read up on independent contractor forms for further guidance!