Payroll Tax Essentials for Employers

Federal Payroll Tax Obligations

FICA Taxes

Employers must withhold and match:

• Social Security: 6.2% on wages up to the annual wage base
• Medicare: 1.45% on all wages (no wage cap)
• Additional Medicare: 0.9% on wages exceeding $200,000 (employee portion only, no employer match)

Federal Income Tax Withholding

Employers must withhold federal income tax based on the employee's W-4 form. Use the IRS withholding tables or the percentage method to calculate the correct amount.

FUTA

The Federal Unemployment Tax Act (FUTA) tax is 6.0% on the first $7,000 of each employee's wages. Most employers receive a credit of up to 5.4% for state unemployment taxes paid, reducing the effective FUTA rate to 0.6%.

Deposit and Filing Requirements

• Semi-weekly depositors: Must deposit employment taxes by the following Wednesday (for Saturday through Tuesday paydays) or Friday (for Wednesday through Friday paydays)
• Monthly depositors: Must deposit by the 15th of the following month
• Form 941: Filed quarterly to report income taxes, Social Security, and Medicare
• Form 940: Filed annually to report FUTA tax

State Requirements

Each state has its own requirements for:

• State income tax withholding
• State unemployment insurance (SUI)
• State disability insurance (where applicable)
• Local taxes (varies by municipality)

Common Errors

1. Missing deposit deadlines (penalties accumulate quickly)
2. Misclassifying employees as independent contractors
3. Failing to withhold taxes on fringe benefits
4. Not adjusting withholding when employees move to different states
5. Incorrect reporting of tips and other supplemental wages

Year-End Obligations

• Issue W-2 forms by January 31
• File W-2 copies with the Social Security Administration by January 31
• Issue 1099 forms to independent contractors by January 31
• Reconcile quarterly filings with annual totals