Payroll Taxes and Employer Responsibilities

Employers calculate payroll taxes using an employee ‘s gross or full engage earnings and diverse deductions to arrive at net or take-home pay. This seems simple adequate on the surface, but calculating the deductions requires attention to detail and extreme accuracy .

The Basic Formula for net pay up

In simplest terms, the basic formula for net yield works like this :

Employee’s gross pay (pay rate x hours worked) minus statutory payroll tax deductions minus voluntary payroll deductions equals net pay

Statutory Payroll Tax Deductions

The police requires that payroll taxes must be withheld from an employee ‘s paycheck each pay period. Employers must then transmit these withholdings to versatile tax agencies. Payroll tax deductions include the following :

  • Federal income tax withholding based on the withholding tables in Publication 15
  • Social Security tax withholding of 6.2% in 2020 and 2021, up to the annual maximum taxable earnings or wage base of $137,700 for 2020 and $142,800 for 2021
  • Medicare tax withholding of 1.45%
  • Additional Medicare tax withholding of 0.9% for employees earning over $200,000 
  • State income tax withholding
  • Various local tax withholdings, such as city, county, or school district taxes; state disability; or unemployment insurance

Voluntary Payroll Deductions

Voluntary payroll deductions are withheld from an employee ‘s paycheck merely if the employee has agreed to the subtraction. voluntary deductions pay for or contribute toward respective benefits which the employee has elected to participate in. voluntary deductions can include the comply :

  • Health insurance premiums, such as medical, dental, and eye care
  • Life insurance premiums
  • Retirement plan contributions, such as a 401(k) plan
  • Employee stock purchase plans, such as ESPP and ESOP plans
  • Meals, uniforms, union dues, and other job-related expenses

voluntary deductions can be paid with pre-tax or after-tax dollars, depending on the type of benefit that ‘s being paid for. Some pre-tax deductions reduce merely wages subject to federal income tax, while other deductions reduce wages subject to Social Security and Medicare taxes, adenine well .

IRS Publications 15 and 15-B explain which benefits are pre-tax for respective purposes, and professional-grade payroll software will help you keep cut of all tax-related calculations.

Employer Payroll Tax Responsibilities

The responsibility for payroll taxes continues even after paychecks have been issued to employees. The party is besides responsible for :

  • Paying the employer’s share of payroll taxes
  • Depositing tax dollars withheld from the employees’ paychecks
  • Preparing various reconciliation reports
  • Accounting for the payroll expense through their financial reporting
  • Filing payroll tax returns

Employer Payroll Taxes

Companies are responsible for paying their part of payroll taxes. These taxes are an total expense over and above the expense of an employee ‘s crude give. The employer parcel of payroll taxes includes the watch :

  • Social Security taxes of 6.2% in 2020 and 2021 up to the annual maximum employee earnings of $137,700 for 2020 and $142,800 for 2021
  • Medicare taxes of 1.45% of wages 
  • Federal unemployment taxes (FUTA)
  • State unemployment taxes (SUTA)

FICA Taxes

FICA stands for the Federal Insurance Contributions Act. The FICA tax consists of both Social Security and Medicare taxes. FICA taxes are paid both by the employee and the employer. Each party pays half of these taxes. Both halves of the FICA taxes add up to a sum of 15.3 %, break down deoxyadenosine monophosphate follows :

  • Social Security employee contribution: 6.2%
  • Social Security employer contribution: 6.2%
  • Medicare employee contribution: 1.45%
  • Medicare employer contribution: 1.45% 

The Additional Medicare Tax

Since 2013, an extra Medicare tax of 0.9 % has been applied to unmarried employees who file an individual tax come back and whose Medicare wages exceed $ 200,000. The extra Medicare tax applies to income over $ 250,000 for marry taxpayers who file a joint return and to income over $ 125,000 for married couples who file separate returns.

The extra Medicare tax is an employee-only tax. There ‘s no corresponding tax imposed on the employer.

Reporting Payroll Taxes

Employers are required to report their payroll tax obligations and to deposit payroll taxes in a timely manner. Reporting requirements include :

Employers besides have requirements to file reports with assorted state and local agencies. Employers can find links to country tax agencies through the American Payroll Association web site .

source :
Category : Finance

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