Employers in the US are required to submit withheld taxes to the IRS every year.
Basically, employers of all industries must pay a variety of federal taxes related to their workers in addition to the taxable revenue of their firm. Social Security, Medicare, and unemployment taxes are all included in this.
There are precise payment dates and IRS paperwork for each sort of tax payment you must make. This is where having a solid report payroll system in place can be invaluable. Keep on reading for our full breakdown of the different kinds of payroll taxes you need to report and how each of them functions.
Report Payroll: Start With Your Employees
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If you don’t already have a federal employer identification number (EIN) for your firm, you’ll need to acquire one.
Additionally, you may need to get state and municipal tax numbers. And, the tax authorities will normally provide you with information about your unique payroll tax responsibilities.
It may also provide you with the papers you’ll need to utilize when depositing taxes and filing returns, in addition to providing an EIN. For the purposes of federal payroll tax, you will need both reports and to deposit your wages.
What Are the Duties of Employers in Terms of Payroll Taxes?
Employers must complete payroll tax management, which entails a number of procedures.
You’ll want to calculate the amount of income tax withheld and additional employment taxes. You should pay worker’s compensation taxes on a regular basis (with an exception for a very small employer). In short, it can depend on the different types of payroll funding.
Report to their workers and the Social Security Administration on a quarterly basis about the taxes they deduct from their paychecks.
This will include payroll taxes and FICA, and on an annual basis, the taxes and what they pay to their employees. Annual FUTA reports are also required. There is also reporting at the state level.
Please keep in mind that an employer might need additional deductions, such as salary elective deferral amounts for 401(k) plans and flexible spending accounts or garnishment for child support, from workers’ paychecks.
Those higher withholding amounts don’t count against employment taxes; they’re just an additional employer duty.
Mandatory Employer Payroll Taxes: The Basics
Employers are responsible for paying payroll taxes, and if they don’t do it correctly, the IRS might issue a fine.
Employers and workers both pay a variety of payroll taxes, some of which are borne by one or the other. However, employers are responsible for depositing them in all situations.
Federal Income Tax
The amount of federal income tax that workers need to pay is determined by the amount of income tax withheld from their paychecks.
In addition to income taxes, Social Security and Medicare taxes are also included. It also contains an extra Medicare tax for some workers (explained later).
State Income Tax
State income taxes must be withheld from workers’ paychecks in all states except for those with no income tax, such as Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.
New York City and Philadelphia, for example, both levy income taxes, resulting in extra taxes being withheld from employees’ paychecks.
Other withholding is necessary for a few places to cover:
- Short-term disability
- Unemployment benefits
- Paid family leave
- Social Security Tax (FICA)
FICA taxes, which include Social Security and Medicare taxes, are levied on both employers and workers to pay for these benefits.
There is an annual salary base limit of $137,700 for Social Security and 1.45 percent of total remuneration for Medicare that both employees and employers contribute.
The Federal Unemployment Tax Act (FUTA)
While the federal government does not provide unemployment benefits directly, it does assist states in doing so for workers who have been laid off without cause.
Federal Unemployment Tax Act (FUTA) taxes are used to pay for this aid to the states. Those earning less than $7,000 are exempt from the tax. However, businesses may take advantage of state tax credits of up to 5.4% to reduce their federal rate to 0.6%, or a maximum payment of $42 per employee, making the net federal rate even lower.
States that borrow money from the federal government to satisfy their unemployment benefits obligations and do not repay the loans lose some of their credit.
What About State Unemployment Tax?
Unemployment benefits are paid to employees who have been fired unwillingly by their employers (those laid off other than for gross misconduct or who are furloughed).
States levy an unemployment tax on employers in order to cover the costs of this duty. In a way, the tax acts more like insurance since the rate that firms pay is dependent on their claims history.
In the event that a former employee files a claim, the tax rate on the employer increases. Informing an employer of its tax rate each year, the state must never go below a certain amount.
The Extra Medicare Tax
The employer must withhold an extra amount for the increased Medicare tax when an employee’s pay from an employer surpasses $200,000.
Income exceeding $250,000 for married couples filing jointly, $200,000 for individuals filing, and $125,000 for married couples filing separately is subject to this tax.
The employer is only responsible for withholding this tax from the employee; the employee is responsible for paying it. In short, regardless of the employee’s marital or tax-filing status, the $200,000 withholding limitation is in place.
The Frequency of Submitting Taxes
Most companies submit their tax returns once a year. However, the federal return (Form 941) is submitted quarterly by the employer.
Each state has its own set of deadlines for submitting tax returns. Contact your state’s tax/revenue/finance office if you have any questions.
How Much Should You Withhold?
Based on an employee’s Form W-4, the employer must determine the right amount of withholding.
Form W-4 was updated for 2020, but current workers are not obliged to submit new forms; their employers may still calculate withholding based on the old forms.
Employment Taxes: The Employer Edition
An employer’s payroll duties might seem intimidating at first glance. The 2020 changes included a new Form W-4, a higher salary base limit for Social Security taxes, required payments of certain benefits offset by employment taxes, and a delay option for deposits.
But, we hope that our guide has shed some light on the tax nuances when you report payroll. And, you should check out our finance section for more information on the topic.
