The Law, Costs, and Benefits of Payroll Taxes for Employers

Payroll taxes for employers - Law, Costs, and Benefits

Payroll taxes are federal and state taxes that every employer is required by law to withhold and/or pay on behalf of their employees. Employers are required to withhold state and federal income taxes as well as social security and Medicare taxes from every employee’s’ wages. In addition, employers are required to pay a matching amount of social security and Medicare Taxes for employees as well as paying federal and state unemployment taxes.

Percentage Costs for Social Security and Medicare

Federal income tax is withheld by the employer and calculated using the employee’s Form W-4 and withholding tables provided by the IRS.  The social security payroll taxes for employers are paid by both the employee and the employer.  For 2016, the social security tax rate is 6.2%.  Therefore, 6.2% is deducted from the employee’s wages and matched with 6.2% paid by the employer for a total of 12.4% in social security taxes. The wage limit for social security taxes is $118,500 per employee.  Medicare taxes are also paid by the employee and employer.  The Medicare tax rate for 2016 is 1.45% each.  Thus, a total of 2.9% is paid for Medicare taxes.  Based on these laws, an employer pays 7.65% in social security and Medicare payroll taxes costs.

Unemployment Taxes Costs

State unemployment tax rates are determined by individual state governments based on a wage base for each state.  Although the state unemployment tax is based on an employee’s salaries and wages, the entire state unemployment tax is paid by the employer. No monies are withheld from an employee’s salary or wages for the state unemployment tax.

For 2016, the federal unemployment tax rate (FUTA) is 6.0%. This applies to the first $7,000 the employer pays to each employee as wages during the year. The $7,000 is the federal wage base. Your state wage base may be different.  Generally, you can take a credit against your FUTA tax for amounts you paid into state unemployment funds. The federal unemployment tax is a payroll tax for employers that is paid entirely by the employer.

Must Read: 5 Must-Know Facts about Unemployment Benefits

Workers’ Compensation

Worker’s Compensation Insurance is a significant payroll tax cost for an employer.  The rates for Workers’ Compensation Insurance are determined by at least three variables:

  1. The type of business or industry,
  2. The type of job being performed, and
  3. The employer’s history of claims.

Workers’ Compensation is administered at the state government level and employers should check with his or her individual state regarding the rate for this payroll cost.

Benefits of Payroll Taxes

Some of the payroll taxes benefits paid by an employer are as follows:

  • Employer portion of insurance – health, dental, vision, life, disability
  • Employer paid holidays, vacations, and sick days
  • Employer contributions toward 401(k), savings plans, & profit-sharing plans
  • Employer contributions to pension plans
  • Post-retirement health insurance

An employer determines the type of payroll tax benefits that are offered.  For example, Company A may pay employees two weeks of paid vacation after five years of service while Company B pays two weeks of paid vacation after ten years of service.

Help for Unpaid Payroll Taxes

The laws for payroll taxes for employers can be extremely confusing for the average citizen.  When a business has unpaid payroll employment taxes, the IRS will seek to satisfy those debts from the business assets. If the business cannot pay the taxes, the IRS will attempt to find someone whom the assessment of the Trust Fund Recovery Penalty can be made. If you find yourself in a bind understanding the laws or if you fall behind in payment of your payroll taxes and the IRS is calling, the Law Offices of Nick Nemeth are here for you.  They possess the knowledge and expertise of payroll taxes for employers and the laws associated with such.  Give them a call at (972) 734-1171 and let them help you!