HR Support on Employment / Payroll Taxes

Editor's Note: Avoid penalties by properly calculating and withholding employment taxes.

Rena PirsosOverview: 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 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

Latest items in Employment Taxes

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    Type:
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    Type:
    Employment Law Manual

    In-depth review of the spectrum of Maine employment law requirements HR must follow with respect to depositing and reporting withheld taxes.

  • State Unemployment and Disability Insurance Taxable Wage Bases - 2015

    Type:
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    Most employers pay state unemployment insurance contributions based on the wages they pay to their employees, up to an annual state taxable wage base. This chart provides employers with each state's 2015 unemployment and disability insurance (if applicable) taxable wage base.

  • IRS Issues 2015 Form W-4

    Date:
    12 December 2014
    Type:
    News

    The IRS has released the 2015 Form W-4, Employee's Withholding Allowance Certificate, which employers use to determine the amount of federal income taxes to withhold from employees' pay.

  • IRS Issues Form 940 for Tax Year 2014

    Date:
    11 December 2014
    Type:
    News

    The IRS has issued the 2014 Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return; Schedule A (Form 940), Multi-State Employer and Credit Reduction Information; Schedule R (Form 940), Allocation Schedule for Aggregate Form 940 Filers; and the Instructions for Form 940. The due date for filing Form 940 is February 2, 2015.

  • 2015 Federal Percentage Method Withholding Tables Released by IRS

    Date:
    09 December 2014
    Type:
    News

    The IRS has released advance copies of the federal percentage method withholding tables effective for wages paid in 2015. The withholding allowance amounts by payroll period have changed from the 2014 amounts.

  • IRS Clarifies Form 941-X Instructions for Correcting Certain AMT Withholding Errors

    Date:
    05 December 2014
    Type:
    News

    The IRS has posted a document to its website clarifying the instructions for line 11 of Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund. The clarifications explain how an employer should correct various types of errors relating to withholding of Additional Medicare Tax (AMT).

  • FICA Wage Base Up in 2015, Tax Rates Unchanged: Employment Law Manual, Quick Reference Chart Updated

    Date:
    04 December 2014
    Type:
    Editor's Choice

    The Social Security taxable wage base will increase for 2015, but FICA tax rates will remain unchanged. As in prior years, there is no taxable wage limit on the Medicare portion of FICA.

  • Tax Treatment of Same-Sex Couple Benefits by State

    Type:
    Quick Reference

    Despite the DOMA decision handed down by the Supreme Court in Windsor, state laws still vary greatly regarding both the recognition of same-sex marriage and the taxation of benefits provided to an employee's same-sex spouse by an employer. This Quick Reference chart summarizes federal and state law regarding whether same-sex marriages, civil unions and/or domestic partnerships are recognized, and whether the value of benefits provided by an employer to an employee's same-sex spouse or civil union or domestic partner is taxable. This chart will be updated when any changes in these laws occur.

  • 2014 FUTA Tax Rate Will Be Higher for Employers in Seven States

    Date:
    13 November 2014
    Type:
    News

    The DOL has identified seven FUTA credit-reduction states for 2014. Employers in those states will pay a greater amount of federal unemployment tax as a result.

About this topic

HR guidance on compliance with Social Security and Medicare (FICA) taxes, payroll taxes and federal unemployment insurance (FUTA) taxes.