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 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
The Employment Law Manual and a Quick Reference Chart have been updated to reflect Wisconsin's lowered supplemental wage tax rates.
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.
The Taxation of Employee Compensation section of the Employment Law Manual has been updated to reflect new regulations clarifying when a "substantial risk of forfeiture" exists when property is transferred in connection with the performance of services by an employee.
The Depositing and Reporting Withheld Taxes section of the Employment Law Manual has been updated to include final regulations issued by the Internal Revenue Service intended to help determine which party is liable for an employer's employment tax obligations under a service agreement between the employer and a third-party payor.
Employees' salary and fringe benefits are subject to federal income taxes, Social Security and Medicare taxes, and federal unemployment insurance tax. However, certain cash and noncash fringe benefits may be offered to employees on a tax-free basis, while an otherwise tax-free fringe benefit becomes taxable compensation to employees if employers do not meet the rules for that particular fringe benefit .This section assists HR professionals in determining which fringe benefits (e.g., company car, health benefits) and other compensation (e.g., bonuses, awards) are taxable or not.
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).
The new and updated content follows the US Supreme Court ruling in United States v. Quality Stores, Inc., that FICA taxes apply to most severance pay plans.
Yesterday, the US Supreme Court unanimously ruled in United States v. Quality Stores, Inc., No. 12-1408 (U.S. Sup. Ct., 3-25-14), that severance payments made to involuntarily terminated employees that do not qualify as supplemental unemployment benefits (SUBs) under the Internal Revenue Code (IRC) are subject to Social Security and Medicare (FICA) taxes.
A new section has been added to the Unemployment Insurance Tax (FUTA/SUTA); Workers' Compensation Payroll Assessment: New Mexico section of the Employment Law Manual to help an employer comply with withholding and reporting requirements.
In-depth review of the spectrum of New Mexico employment law requirements HR must follow with respect to unemployment insurance tax.
HR guidance on compliance with Social Security and Medicare (FICA) taxes, payroll taxes and federal unemployment insurance (FUTA) taxes.