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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    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.

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    Date:
    13 November 2014
    Type:
    News

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    Date:
    06 November 2014
    Type:
    News

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  • Social Security and Medicare Tax Rates and Benefit Amounts

    Type:
    Quick Reference

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    Type:
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  • 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

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

    Date:
    10 October 2014
    Type:
    News

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About this topic

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