Penalties, fines, and consequences, oh my! If you’re not nailing your payroll taxes, your business could face all of these.
At first, nothing about payroll seems simple, but payroll taxes are perhaps one of the most confusing—and high-pressure—items on the payroll to-do list. You’re bombarded with acronyms like FICA, FUTA, and SUTA, and it’s easy to be left wondering which payroll taxes are the employers’ responsibility and which fall on your employees.
This post answers the question: which payroll taxes are the employers’ responsibility? We walk you through the details you need to know about each tax on your plate.
Which Payroll Taxes are the Employers’ Responsibility?
Acronyms always look cryptic and intimidating until you break down what they are. Knowing exactly what you need to withhold and pay in taxes takes a weight off your shoulders. Let’s make it simple:
Payroll taxes are wages withheld from your employees’ paychecks by you, the employer.
The amount of tax you withhold and pay the government depends on wages and salaries. We’ll cover three basic types of payroll taxes in this post.
The IRS hands out millions of payroll penalties yearly. Many of those penalties are avoidable, assessed as “failure to pay.” The IRS collects over $1 billion in fees. Can your business afford penalties and fines?
You must not forget to submit payroll taxes. Even if it’s unintentional, you’ll still face fines for paying late, or not at all. You also face penalties for failing to send tax forms and misclassifying workers. We’re not trying to scare you; we want to help.
Payroll taxes don’t have to be a chore or something to fear—instead, partner with a high-quality, reliable payroll company like ConnectPay.
Our team of experts takes care of all of your payroll needs, and with automated payroll tax processing, we guarantee that your payroll taxes are filed correctly and on time.
The social security tax funds the Social Security program. Collected taxes fund the retirement, disability, and survivorship benefits millions of Americans receive each year. As of 2022, the Social security tax rates are 6.2% for the employer and 6.2% for the employee.
Employers withhold this tax from employees and forward it to the government.
The Social Security tax rate is assessed on all types of income, including wages, salaries, and bonuses, but there’s a cap. The maximum amount of income subject to Social Security tax is $147,000. Any amount earned above that isn’t subject to taxation.
Look out for updates on Social Security tax. For example, the maximum amount of income subject to taxation in 2021 was $142,800.
Employers use Form 941, the Employer’s Quarterly Federal Tax Return, to report Social Security tax withheld from employees’ paychecks and to pay their portion of Social Security.
Medicare taxes fund Part A of the Medicare insurance program, including hospital insurance for people over 65 and people with disabilities or medical conditions. Hospital insurance covers hospice and nursing home care and hospital visits.
Like Social Security tax, Medicare taxes are withheld from employee paychecks. As of 2022, the Medicare tax rates are 1.45% for the employer and 1.45% for employees. Social Security and Medicare taxes are put into trust funds to benefit current and future Medicare beneficiaries.
There are a couple of things to look out for:
- The additional Medicare tax applies to individuals who earn more than $200,000 and married couples who file jointly and earn more than $250,000.
- The additional amount is 0.9% and is withheld from an employee’s paycheck. However, as the employer, you are not required to pay any additional amount.
Again, use Form 941 to report Medicare taxes withheld from employees’ paychecks.
Federal Unemployment (FUTA)
Any business that has employees must pay FUTA taxes. FUTA stands for the Federal Unemployment Tax Act. The revenue it generates funds unemployment benefits for people out of work.
The FUTA tax rate is 6% of the first $7,000 paid to an employee annually. However, only the employer pays FUTA taxes. In other words, it’s not deducted from an employee’s wages.
If you’re eligible (you paid FUTA taxes on time), you can receive up to 5.4% credit. Meaning you’ll only owe $42 per employee.
You must pay FUTA taxes quarterly and report them on Form 940 annually.
Note: SUTA tax is the same as FUTA but at a state level. Each state has its own SUTA tax rate and taxable wage base limit.
Which Payroll Taxes are the Employers’ Responsibility: And How Can You Manage Them?
Managing payroll taxes can feel overwhelming even for the most experienced payroll professional. Understanding which payroll taxes are the employers’ responsibility is an excellent starting point for nailing your payroll processes.
However, this understanding is only the first step in your journey toward effective, efficient payroll processes.
Efficient payroll requires knowledge of local taxes, Workers’ Compensation laws, and more. Our free resource, the Connected Guide to Small Business Payroll, provides you with a solid foundation of all the knowledge you need to run your payroll headache-free.
Request access to the Connected Guide today to get started!