Overview: Employers are required to withhold employment/ payroll taxes from employees' pay and remit and report the amounts withheld to the federal government. Employment taxes include Social Security and Medicare (FICA) taxes and federal unemployment insurance (FUTA) taxes. Employers that fail to fulfill these requirements are liable for serious penalties. HR managers that oversee payroll departments are responsible for avoiding such penalties by ensuring that employment tax laws are being complied with.
Both employers and employees are required to pay FICA taxes to fund the Social Security and Medicare programs. Employers withhold the employee share of FICA taxes from employees' wages, make a matching contribution in the same amount, and then pay both shares to the federal government.
FUTA taxes fund unemployment insurance benefit payments to employees who have lost their jobs through no fault of their own. Only employers pay FUTA taxes; they are not withheld from employees' wages.
FICA. The Social Security tax rate is 6.2 percent up to a taxable wage base of $117,000 for 2014, which is an increase from the 2013 wage base of $113,700. There is no limit on the amount of wages subject to Medicare tax withholding; the rate is currently 1.45 percent. However, single employees earning more than $200,000, and married couples who file joint tax returns and earn more than $250,000, pay an additional 0.9 percent Medicare tax. High earners, therefore, pay the 1.45 percent Medicare tax rate plus the additional 0.9 percent, for a total Medicare tax rate of 2.35 percent. Employers do not pay the additional 0.9 percent tax.
FUTA. The base FUTA tax rate is 6 percent up to a taxable wage base of $7,000. Employers may be able to reduce their overall FUTA liability by taking credits against state unemployment insurance contributions paid. Beware that these credits may be reduced if the state where the employer is located is a credit reduction state - a state that has borrowed money from the federal government to pay regular benefits but has failed to pay back the loans by certain dates. The US Department of Labor certifies by each November 10 which states have taken steps toward financial solvency.
Author: Rena Pirsos, JD, Legal Editor
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In Information Letter 2014-0012, the Internal Revenue Service has outlined two procedures that a same-sex married employee may use to claim an income tax refund if an employer included the value of his or her spouse's health insurance on the 2013 Form W-2.
Maine Form 941/C1-ME, Combined Filing for Income Tax Withholding and Unemployment Contributions, will be divided into separate forms effective for tax years beginning after January 1, 2014.
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One of the most important payroll related tasks is ensuring that taxes withheld from employees' pay are deposited and reported properly and on time. This section reviews tax deposit schedules, the Electronic Federal Tax Payment System (EFTPS) and other electronic filing requirements, potential penalties for noncompliance, and important tax forms (e.g., 941, W-2, W-3, 1099).
Due to an increase in the Yonkers, NY, Resident Tax Surcharge and supplemental withholding rates for 2014, the Employment Law Manual and a Quick Reference Chart have been updated.
Final regulations issued by the Internal Revenue Service permit the use of a Truncated Taxpayer Identification Number (TTIN) on payee statements and certain other documents, except Form W-2, instead of a taxpayer's Social Security Number, Individual Taxpayer Identification Number, Adoption Taxpayer Identification Number or Employer Identification Number. The regulations are generally effective for payee statements due after December 31, 2014.
HR guidance on compliance with Social Security and Medicare (FICA) taxes, payroll taxes and federal unemployment insurance (FUTA) taxes.