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 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.
Author: Rena Pirsos, JD, Legal Editor
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.
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. This involves much coordination and myriad detailed tasks which, if not carefully planned out in advance, can become nothing less than overwhelming. 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.
A new Task that helps employers Plan a Successful Payroll Year-End has been added to XpertHR's content. It brings together, in one convenient place, a robust set of tools and resources employers can consult all through the year to ensure a more organized and fully compliant year-end.
A new chart on state income tax withholding on supplemental wages has been added to the Quick Reference tool.
This Quick Reference Chart provides employers with an overview of the current method required to be used in each state to withhold state income taxes from supplemental wage payments made to employees.
A new Payroll Year-End Practices and Procedures Checklist has been added to the Policies and Documents Tool to help employers close out the year's payroll in compliance. The checklist also provides essential month-by-month practices and procedures that help employers keep their payroll administration organized all year long.
A new Social Security and Medicare Tax Rates and Benefit Amounts - Chart has been added to the Quick Reference Tool.
This checklist helps employers successfully close out the year's payroll in compliance with the income and employment tax laws and regulations, and provides essential month-by-month practices and procedures that helps employers keep their payroll processes organized all year long.
Employers and employees each contribute into the Social Security retirement system via Social Security and Medicare (FICA) taxes. This Quick Reference chart provides employers with a comparison of the current and prior year social security taxable wage base, FICA tax rates and Social Security benefit amounts.
HR guidance on compliance with Social Security and Medicare (FICA) taxes, payroll taxes and federal unemployment insurance (FUTA) taxes.