All About Payroll Taxes

The employer is responsible for depositing and reporting the employment tax. At the end of the year, the employer needs to prepare Form W-2. The purpose of the form is to report wages, tips, and other compensation paid to employees. Employers must also use Form W-3. This form is used to send Form W-2 data to the Social Security Administration.

Employers must withhold various categories of IRS, including federal income, social security and Medicare, additional Medicare, federal unemployment [FUTA], and self-employment taxes.

Federal income tax is usually withheld from employee wages. To calculate the amount withheld from an employee's wage, an employer needs to refer to two things: employee form W-4, publication 15, and withholding held by the employer. table. ■ Tax guide. The employer must withhold. There are two deposit schedules, monthly and half week. The schedule determines when an employer must deposit social security, Medicare, and withholding income taxes. “These schedules show that deposits are due after tax obligations occur” [IRS.gov, “Publication 15”, August 29, 2013]. The deposit schedule used by the employer is based on the total tax obligations reported in Form 941. With this in mind, deposits are not based on how often the employer pays the employee.

With respect to social security tax and Medicare tax, employers must withhold a portion of the employee's wage and match the amount. Refer to Publication 15 and Publication 15-A, Employer Supplemental Tax Guide for instructions on how the employer withholds from employee wages. The employer must deposit the amount to withhold. At the time of this writing, “The social security employee tax rate rose to 6.2% in 2013. The social security wage base limit increased to $ 113,700” [IRS.gov, “Understanding Employment Tax”, 2013 August 29]. The tax rate for Medicare employees is 1.45% withheld from each employee's wage. The employer's tax is 2.9%. “There are no wage-based restrictions on Medicare taxes. All eligible wages are subject to Medicare taxes” [IRS.gov, “Publication 15”, 29 August 2013].

The IRS requires employers to withhold additional Medicare amounts from employee wages. For example, an employer must withhold an additional Medicare tax of 0.9% from employees whose wages exceed $ 200,000 in a calendar year. Employers are required to pay taxes for periods exceeding $ 200,000 paid to employees. The employer must withhold each salary period until the end of the year. Employers need to “share” other taxes, but there is no additional Medicare tax sharing. Special rules apply to service types and payments. See section 15 of publication 15 for more information on classification of employment and special types of payments and treatment under employment tax.

Employers must report and pay federal unemployment tax [FUTA] separately from federal income tax, social security, and Medicare tax. Employers pay FUTA from their own funds. Employees are not responsible for paying this tax. Employers are not able to withhold taxes from employee wages. Publications 15 and 15-A provide guidance and detailed information on FUTA tax.

Lastly, self-employment tax is a type of social security and Medicare tax, primarily targeting individuals who work on their own. Self-employment taxes are similar to social security and Medicare taxes that are withheld from many employees' salaries. Self-employment tax is suitable for individuals with a net income from self-employment of at least $ 400 and church income of $ 108.28 or more. The self-employed person calculates the self-employment tax using Schedule SE [form 1040]. The current self-employed tax rate in 2013 is 15.3%. The rate is divided into two parts. 12.4% for social security and 2.9% for Medicare [hospital insurance].

After this calculation, self-employed taxpayers can select a tax year other than the calendar year. If you choose the former, you must use a valid tax rate and maximum income limit at the beginning of the tax year. “[A] Even if the tax rate or maximum income limit changes during the tax year, you must continue to use the same tax rate and limit throughout [their] tax year” [IRS.gov, “Self-Employment Tax” , 8/29/2013].

Employers and small business taxpayers can access the IRS website for detailed guidance on requirements specific to their status and taxes that must be paid.