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HR Support on Employment / Payroll Taxes
Editor's Note: Avoid penalties by properly calculating and withholding employment taxes.
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.
Trends:
FICA: The Social Security taxable wage base is $113,700 for 2013, up from the 2012 wage base of $110,100. There is no limit on the amount of wages subject to Medicare tax withholding; the rate is currently 1.45 percent. In 2013, employees earning more than $200,000 are subject to an additional 0.9 percent Medicare tax.
Congress did not extend the temporary two percent cut in the employee share of the Social Security tax rate that was in effect in 2011 and 2012, allowing the rate to revert from 4.2 percent back to 6.2 percent for 2013, which is equal to the employer share. Thus, the total FICA tax rate for 2013 (6.2 percent plus 1.45 percent) is 7.65 percent up to the $113,700 Social Security taxable wage base.
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.
Rena Pirsos, JD, Legal Editor
Latest items in Employment Taxes
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IRS Issues Final Regulations on Employer Identification Numbers
The Internal Revenue Service (IRS) has issued final regulations, effective January 1, 2014, requiring employers that have an employer identification number (EIN) to provide updated EIN application information to the IRS when required by forms, instructions or other guidance that the IRS plans to issue in the near future.
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Taxation of Employee Benefits
Employee benefits, such as health insurance, sick pay, disability pay, workers' compensation insurance and retirement savings plans, may be subject to withholding for federal income taxes (FIT), Social Security and Medicare (FICA) taxes or federal unemployment (FUTA) taxes. This section assists HR professionals in understanding how each particular type of benefit plan must be structured and how to properly tax and report contributions, reimbursements and distributions in order to ensure compliance with the Internal Revenue Code.
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Depositing and Reporting Withheld Taxes
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).
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High-Tech/Software and Communications Resource Center for HR: Payroll
XpertHR's High-Tech Resource Center for HR: Payroll helps high-tech employers handle their most challenging employment issues by bringing relevant resources together in one place for easy access.
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IRS Issues Additional Payroll Tax Refund Procedures
The Internal Revenue Service (IRS) has posted additional procedures explaining how employers and employees can obtain refunds of overpaid federal income, Social Security and Medicare (FICA) taxes after the 2012 transportation fringe benefit limits were retroactively increased by the American Taxpayer Relief Act (ATRA) of 2012.
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Employers: Deadline to File Protective Payroll Tax Refund Claim Nears
Employers that paid federal income tax and Social Security and Medicare taxes on the value of health care benefits provided to employees' same-sex partners for tax years 2009 and after should consider whether they want to file a protective refund claim while they await the US Supreme Court's decision in the pending Defense of Marriage Act case, United States v. Windsor.
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North Dakota Narrows Scope of Permitted Paycheck Deductions
Effective August 1, 2013, the types of payroll deductions that North Dakota employers will be permitted to make will become more limited under amended rules.
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New Section Added on Maine Taxation of Employee Benefits
XpertHR has added a new section to the Employment Law Manual explaining whether employers in Maine must withhold payroll taxes on health insurance benefits provided to employees' same-sex spouses.
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Taxation of Employee Benefits: Maine
Maine excludes from taxable income health insurance benefits for employees' same-sex spouses and their children.
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IRS Releases 2013 General Instructions for Forms W-2 and W-3
The Internal Revenue Service (IRS) has released the 2013 General Instructions for Forms W-2 and W-3. The 2013 Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements, were released by the IRS earlier this month without the instructions. The instructions highlight some new information of interest to employers.
About this topic
HR guidance on compliance with Social Security and Medicare (FICA) taxes, payroll taxes and federal unemployment insurance (FUTA) taxes.
Employment/ Payroll Taxes: Key Items
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Withholding Taxes
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Federal Unemployment Insurance Tax
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Eighteen States Lose FUTA Credit Reduction for 2012
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2013 State Unemployment and Disability Insurance Taxable Wage Bases
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Hawaii Unemployment Insurance Taxable Wage Base for 2013
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Calculation of FICA Withholding - Worked Example
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FICA Taxation of Severance Pay Remains Unsettled