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

  • New York Requires Electronic Filing in 2015: Employment Law Manual, Legal Timetable Updated

    Date:
    30 October 2014
    Type:
    Editor's Choice

    All New York employers will be required to file and pay withholding and unemployment insurance taxes electronically starting with the first quarter of 2015.

  • Date:
    30 October 2014
    Type:
    Legal Timetable

  • New York Employers Must File Electronically in 2015

    Date:
    29 October 2014
    Type:
    News

    Effective with returns due on and after April 30, 2015, all New York employers will be required to file certain withholding tax and unemployment insurance (UI) returns electronically.

  • Social Security Wage Base Increasing to $118,500 for 2015

    Date:
    23 October 2014
    Type:
    News

    The Social Security Administration has announced that the Social Security taxable wage base will be $118,500 for 2015, as adjusted for inflation. As in prior years, there is no limit on the amount of wages subject to Medicare tax withholding. The Social Security and Medicare (FICA) tax rates will not change for 2015.

  • New Third-Party Sick Pay Recap Filing Procedure, Form Required in 2015

    Date:
    10 October 2014
    Type:
    News

    Employers will be required to file new Form 8922, Third-Party Sick Pay Recap, for sick pay paid to employees by a third-party agent or insurer in 2014 in order to reconcile Forms 941, Employer's Quarterly Federal Tax Return, and Forms W-2, Wage and Tax Statement. Previously, a third-party payer of sick pay filed recap Form W-2, and Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration.

  • IRS Publication 15-A, Employer's Supplemental Tax Guide, (Supplement to Publication 15 (Circular E), Employer's Tax Guide)

    Type:
    Policies and Documents

    As provided by the Internal Revenue service, IRS Publication 15-A, Supplement to Circular E, Employer's Tax Guide, Publication 15, Employer's Supplemental Tax Guide is a tax information guide for every employer.

  • IRS May Designate Payments Subject to Voluntary Income Tax Withholding Agreements

    Date:
    03 October 2014
    Type:
    News

    Final regulations adopt without changes proposed and temporary regulations issued in 2013 that allow the Internal Revenue Service to designate payments for which the payer and payee may agree will be subject to a voluntary income tax withholding agreement. The final regulations are applicable on or after September 16, 2014.

  • IRS Issues Optional 'High-Low' and Special Per Diem Rates for 2014-2015

    Date:
    29 September 2014
    Type:
    News

    The IRS has issued Notice 2014-57 announcing the 2014-2015 list of "optional high-low" federal per diem rates that employers may choose to use instead of the standard federal rates issued by the General Services Administration to reimburse expenses incurred by employees who travel on business to locations within the Continental US. The IRS also has issued the special federal meals and incidental expenses per diem rates that apply to the transportation industry and the incidental-expenses-only rate.

  • Payroll Year-End Preparation

    Date:
    23 September 2014
    Type:
    Editor's Choice

    At the end of each calendar year all employers are responsible for closing out the year's payroll in compliance with all federal, state and local income and employment tax laws and regulations. Using XpertHR's various tools and resources will help employers establish and follow good payroll practices and procedures all through the year to ensure a successful year-end that is free of noncompliance penalties and fines.

  • 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.

About this topic

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