What employers need to know
Running a successful business is what every business owner wants. However the legal stuff can get a little bit overwhelming. Our team wants to help ease the pressure for business owners by answering their questions and taking care of the IRS so you don't have too. Accountants not only save you time, they can save you money in the long run.
Payroll taxes are taxes that are calculated through a process as a percentage of the wages employers pay their employees.
It falls under deductions from an employees wage and taxes paid by the employer based on the employees earned pay. In other words, these taxes are withheld from employee wages, collected by employers and paid for the employees. These taxes are collected by employers to pay the IRS.
For starters, before hiring staff you must register with the IRS. They supply Employer ID numbers to each worker. Employers must register with the state employment bureau the business resides for income taxes, unemployment taxes and workers compensation.
Payroll tax includes state payroll taxes for unemployment tax funds, disability and workers compensation. This applies differently to each state.
After your accountant calculates the federal income tax withholding amounts and FICA taxes they will advise you to set aside money in the amounts to make semi weekly or monthly payments depending on the size of your payroll.
All small businesses must report payroll quarterly with Forms 941 and NYS 45. [Read more about Form 941 here]
Payroll Tax includes
Payroll taxes include:
- Federal Income Tax withholding, known as FIT (employees gross pay),
- Social Security and Medicare, called FICA taxes (Federal Insurance Contribution Act).
- Employers also pay in FUTA (Federal Unemployment Taxes), employees do not.
FICA Tax Withholding Rates
FICA deducts a rate of 6.2% from the employee and matched by employer weekly with a total of 12.40%. Medicare deducts a rate of 1.45% from employee and matched by employer with a total of 2.9%. Taxes are based on individual income levels and federal tax status. Since 2013, there is an additional 0.09% Medicare Tax required from individuals with a yearly income of $200,000 or more.