Payroll Tax information for employers

What You Need to Know About Payroll Tax for Employers

As part of business operations, there are several important facts to know about payroll tax for employers. Two of the most important to know are the classifications:

  1. Employer-paid payroll taxes
  2. Employee-paid payroll taxes

The distinction between these two classifications is that employer-paid taxes are based on an employee's gross pay. Gross income is income not explicitly exempt from taxation.

The other distinction between these classifications is that payroll taxes are payroll deductions for federal and state taxes levied.

Federal tax deductions include:

  • Social Security tax that is shared by the employer and employee, reported as FICA
  • Federal unemployment tax (employer-paid only)
  • Medicare tax deduction shared between employer and employee
  • State unemployment (See the 15 states that levy this tax)

It is also important for employers to know 41 states in the U.S. levy a state income tax on wages earned in each individual state. In addition, seven states do not tax individual employee income of any type, and local governments in 13 states levy various tax on income along with a state income tax levy.

As an employer and business owner, it is imperative to know the specifications of payroll taxes that exist in the state where your business is located. This ensures that your payroll tax obligations are fully met according to state and federal laws.

State and Federal Payroll Tax Rates

Currently, the federal tax rate paid by employers is the same as the federal tax rate for employees at 6.2%. The Medicare payroll tax rate for employer and employee is currently 1.45%.

But as you will discover, there are also additional taxes for the year 2020. Such as Disability Insurance (DI), where the employer federal payroll tax rate is .90% of what is is for employees.

There is also 2020 Old Age and Survivor Insurance (OASI) that is 6.2% for employer and employee. Employers also pay federal unemployment insurance at .60%. OASI and DI are based on wages earned and adjusted annually to compensate for wage increases.

Need-to-Know Issues

Maintaining up-to-date information on federal and state payroll tax changes may seem a difficult task. You can find most of the basic information you need at the U.S. Internal Revenue government website.

The requirements you need to know as an employer, include:

  • Federal payroll tax deduction impounds
  • When to submit your payroll deposits to the IRS
  • How to acquire and use your federal Employer Identification Number (EIN)

The IRS provides an updated and/or revised version of your payroll tax rates based on number of employees. You can also use Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, to determine your status as an employer.

Most states that require state payroll tax deductions also make an employer guide available at the state division of taxation's office or it can be found online at the state's government website.

Understanding the Significance of Tax Rates for Your Payroll Processing

Now that you know what the current year's federal payroll tax rates are, you might also want to review prior year's federal payroll tax rates to see how these changes affect business overheads and the ability to maintain a sufficient number of employees.

Fortunately, employers are assured that these payroll tax rates for state and federal taxes change on a yearly basis only. This helps you, the employer, determine the most advantageous payroll schedule for your employees. You need to know the four basic types of payroll schedules:

  • Weekly
  • Bi-weekly
  • Monthly
  • Bi-monthly

Each of these payroll schedules have advantages and disadvantages depending on your specific type of business operations and accounting methodology. You need to know your state laws regarding the frequency with which employees are paid, as well as the timeliness of payroll processing. You may rely on Fusion CPA to assist with determining the best payroll processing schedule for your particular needs.

If your business is comprised mainly of salaried employees, they are exempt from overtime pay. Hourly employees are not exempted. The most cost-effective way to manage payroll taxes and stay current on payroll tax rates is to engage the services of Fusion CPA.

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This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.