4 Common Questions about Employer Payroll Taxes

If you run payroll, you’re responsible for paying employer payroll tax annually. And while all tax forms need to be filed as accurately as possible, employer payroll tax forms should be completed with the utmost level of accuracy. In order to properly check all the right boxes, let’s answer some common employer payroll tax questions.

What Employer Payroll Taxes are Required?

Employers bear the responsibility of reporting their payroll by making a number of federal tax deposits throughout the year. In order to report payroll accurately, they must determine gross monthly wages for each employee in addition to their pay stub deductions like 401(k) and HSA deductions before calculating their net pay. Once these calculations are complete, employers need to file the following:

  • Wage and Tax Statements (Form W-2)

  • Annual Return of Withheld Federal Income Tax (Form 945)

  • Annual federal unemployment tax return (Form 940 or 940EZ)

  • Employer’s quarterly payroll tax return (Form 941)

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What taxes do employers and employees share?

The tax deductions employees see on their pay stubs (which we all know and love) are typically shared by their employers as well. The Federal Insurance Contributions Act dictates that employers and employees each pay half of the total for Social Security and Medicare taxes. This adds up to a total of 15.3 percent paid per each employee.

Unlike employees, employers must pay for additional taxes to state unemployment and federal unemployment agencies.

State unemployment tax rates are determined by individual states and allocated to pay for unemployment benefits to state workers.

The federal unemployment tax rate is 6%, but “employers can take a credit of up to 5.4% of taxable income if they pay state unemployment taxes. This amount is deducted from the amount of employee federal unemployment taxes you owe.” Federal unemployment taxes are administered to federal insurance and job services.

How much does a company pay in employer payroll tax for each employee?

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Tax rates change over time, so as an employer it’s crucial to stay informed about the most recent changes impacting your payroll tax rates. As of 2018, the Social Security tax rate requires employers to pay 6.2% in taxes on the first $132,900 of wages paid (unless you hide that shit offshore or your name rhymes with Shmazos).

The Medicare tax rate is more forgiving and is 1.45% for the first round of $200,000 of wages paid. For wage earnings paid over $200,000, employers must pay 2.35%.

So how much do employers pay in payroll taxes?

The amount an employer will pay in payroll taxes will vary wildly depending on a number of factors. First, the state and local tax agencies may require certain taxes to be filed, which might increase or decrease the total amount depending on where your employer is located. Additional taxes may include things like healthcare, transportation, local safety (like taxes allocated for police or fire departments), or others.

On the other hand, some states do not have income taxes on wage earnings. These include Alaska, South Dakota, New Hampshire, Wyoming, Tennessee, Nevada, Washington, Florida, and Texas.

As can be seen, the total amount an employer pays in payroll taxes will be determined by the size of their company, where they are located, and many other factors. The important thing to consider is that payroll taxes must be filed accurately and on time to avoid costly penalties. If you’re looking for an accurate and timely payroll service provider to assist with the headaches of employee tax deductions, request a demo from Dominion today!