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 without fault. Only employers pay FUTA taxes; they are not withheld from employees' wages.
Employment Tax Rates:
FICA. The Social Security tax rate is 6.2% up to a taxable wage base of $127,200 for 2017. There is no limit on the amount of wages subject to Medicare tax withholding; the rate is currently 1.45%. 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% Medicare tax. High earners, therefore, pay the 1.45% Medicare tax rate plus the additional 0.9%, for a total Medicare tax rate of 2.35%. Employers do not pay the additional 0.9% tax.
FUTA. The base FUTA tax rate is 6% 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
Updated to reflect a change in Georgia.
Updated to include the vehicle cents-per-mile and fleet valuation limits, effective January 1, 2019.
This Quick Reference chart summarizes the requirements for an employer to properly complete and timely file federal payroll tax and information returns on a quarterly or annual basis with the Internal Revenue Service and the Social Security Administration, and provide copies of these returns to the appropriate recipients.
XpertHR has added a new Quick Reference chart summarizing the requirements for an employer to properly complete and timely file the quarterly and annual federal payroll tax and information returns required by the IRS and SSA, as well as to timely provide the correct copies of information returns to the appropriate recipients (e.g., employees and independent contractors). The chart also summarizes how an employer can correct errors on a previously filed return.
Updated to reflect a lower Form W-2 filing threshold, effective January 1, 2019.
Updated to reflect a reduced filing threshold in North Dakota, effective for tax year 2019 forms filed in 2020.
HR guidance on compliance with Social Security and Medicare (FICA) taxes, payroll taxes and federal unemployment insurance (FUTA) taxes.