The Basics of Payroll Tax for Employers
As an employer, one of your responsibilities is to withhold and deposit payroll taxes. Payroll tax is a tax on the wages and salaries that you pay to your employees. The money that you withhold from your employees' paychecks is used to fund programs like Social Security and Medicare. In this article, we will discuss the basics of payroll tax and how it applies to employers.
What is Payroll Tax?
Payroll tax includes taxes that are withheld from employees' wages and taxes that are paid by the employer. The taxes that are withheld from employees' wages are called withholding taxes. The taxes that are paid by the employer are called employer taxes.
The most common types of withholding taxes are:
- Federal income tax
- Social Security tax
- Medicare tax
- State income tax (depending on the state)
Employer taxes, on the other hand, include:
- Social Security tax
- Medicare tax
- Federal unemployment tax (FUTA)
- State unemployment tax (SUTA)
How is Payroll Tax Calculated?
The calculation of payroll tax depends on the type of tax that is being withheld or paid. The most common payroll tax is Social Security tax, which is withheld from employees' wages at a rate of 6.2% of taxable income. Medicare tax is also withheld from employees' wages at a rate of 1.45% of taxable income. Employers also pay a matching amount of Social Security and Medicare tax for each employee.
Federal income tax withholding is calculated based on the employee's taxable income, filing status, and allowances claimed on the employee's Form W-4. Employers are required to use the IRS withholding tables to calculate the amount of federal income tax to withhold from employees' wages.
State income tax withholding is calculated based on the employee's taxable income and the state's tax rates. Employers are required to use the state's withholding tables to calculate the amount of state income tax to withhold from employees' wages.
When is Payroll Tax Deposited?
Employers are required to deposit payroll taxes on a regular basis. The deposit schedule depends on the amount of payroll tax that is owed. If the employer owes less than $2,500 in payroll taxes for the current quarter, they can make a payment when they file their quarterly Form 941. If the employer owes more than $2,500, they are required to deposit the payroll taxes on a semi-weekly or monthly basis.
What Happens if Payroll Taxes are Not Deposited?
If payroll taxes are not deposited on time, the employer may be subject to penalties and interest. The penalty for late deposits ranges from 2% to 15% of the payroll tax that was not deposited. In addition, the employer may be subject to interest on the unpaid payroll taxes.
Conclusion
As an employer, it is important to understand the basics of payroll tax. This includes understanding the types of payroll taxes, how they are calculated, and when they are deposited. Failure to comply with payroll tax requirements can result in penalties and interest, so it is important to stay on top of your payroll tax responsibilities.