Unraveling Payroll Tax Duty: Who Pays and Why


Everytime you lower a examine for an worker, the worker isn’t the one one receiving cash. It’s essential to withhold payroll taxes from worker wages and remit them to the right businesses. Relying on the payroll tax, it’s essential to match worker contributions. However, not all payroll taxes are created equally. So, who pays payroll taxes? Is it the employer, the worker, or each? Learn on for the news.

Who pays payroll taxes?

So, who pays payroll taxes? The brief reply is employers and workers pay payroll taxes on wages, ideas, and earnings. The lengthy reply is a little more sophisticated. It seems employers and workers share some payroll taxes and never others. 

Shared payroll taxes

Employers and workers pay equal parts of FICA taxes. FICA taxes are necessary payroll taxes employers and workers pay paid by employers and workers within the U.S. and embody Social Safety and Medicare taxes. Social Safety and Medicare are “insurance coverage” taxes that assist sure teams within the U.S. 

As an illustration, Social Safety supplies partial earnings substitute for:

  • Retired adults
  • People with disabilities
  • Certified spouses, kids, and survivors (e.g., widows or widowers)

And, Medicare is a medical health insurance program for individuals:

  • 65 years or older
  • With qualifying disabilities underneath 65 years outdated
  • With end-stage renal illness

Consider FICA tax as a future security internet you and your workers assist create. Now that you realize what FICA taxes pay for, let’s take a look at who pays them. 

Who pays fica taxes? Fica tax is made up of Social Security and Medicare taxes. The different taxes are paid equally by employers and employees. For social security taxes, employers pay 6.2% and withhold 6.2% from employee wages. For Medicare tax employers pay 1.45% and withhold 1.45% from employee wages.

Social Safety

Each employers and workers pay Social Safety tax. Employers withhold Social Safety taxes from worker wages and match the worker’s contribution.

Social Safety tax is a flat fee of 12.4% break up between the employer and the worker. In different phrases, you pay 6.2% and withhold the remaining 6.2% from worker wages. 

Due to the Social Safety wage base, not all worker wages are topic to tax. It’s essential to cease withholding taxes from an worker’s wages as soon as they attain the wage base for the calendar yr. For 2024, the Social Safety wage base is $168,600. As quickly as an worker’s wages attain $168,600 for the yr, cease withholding (and matching) Social Safety for that worker.

Medicare

Employers and workers additionally share Medicare tax. Like Social Safety, it’s essential to withhold Medicare from worker wages and match the worker’s contribution.

The Medicare tax fee is 2.9% break up between worker and employer. The employer should withhold 1.45% from worker wages and contribute an identical 1.45%. 

Whereas there isn’t a wage base for Medicare taxes, there’s an extra Medicare tax of 0.9% it’s best to find out about. The extra Medicare tax isn’t a shared tax; solely the worker pays it. 

Employers should withhold the extra tax from workers’ wages as soon as they attain the $200,000 threshold.

Employer payroll taxes

Employers and workers don’t share all payroll taxes. There are some payroll taxes paid solely by employers. 

Employers should pay the next payroll taxes:

  • Self-employment taxes
  • Federal unemployment tax
  • State unemployment tax

Self-employment taxes

Employers pay self-employment tax when they’re … (drum roll, please) self-employed. As a result of nobody withholds FICA taxes from their wages, self-employed staff want a strategy to remit their Social Safety and Medicare taxes. That is the place self-employment taxes come into play.

The self-employment tax fee is identical because the FICA fee—15.3% of annual earnings. 

Right here’s how the self-employment tax breaks down. The self-employment tax fee is 15.3%. Social Safety taxes make up 12.4%, and Medicare covers the remaining 2.9%. 

Self-employed staff should maintain monitor of the Social Safety wage base and the extra Medicare tax. Each are the identical for self-employed staff as they’re for workers.  

Federal unemployment tax

The Federal Unemployment Tax Act (FUTA) is an unemployment tax on employers. The federal authorities is dependent upon FUTA taxes to supply unemployment compensation to staff who’ve misplaced their jobs. 

Some employers don’t need to pay FUTA tax. The IRS has three checks that will help you decide if it’s a must to pay FUTA taxes:

  • Common take a look at
  • Family workers take a look at
  • Farmworkers take a look at

Every take a look at is for a selected sort of worker. If the solutions to a selected take a look at apply to your scenario, it’s essential to pay FUTA tax on worker wages. For extra details about the checks, see IRS Publication 15

The FUTA fee is 6% and applies to the primary $7,000 paid to an worker for the yr. This $7,000 is the FUTA wage base. 

Due to the wage base, the biggest FUTA quantity you’ll pay per worker is $420 ($7,000 X 0.06). In the event you pay greater than $420 per worker, you’ve paid an excessive amount of. 

You might be eligible for a FUTA tax credit score (most employers are) of as much as 5.4%. But when your online business is positioned in a credit score discount state, the quantity of FUTA tax credit score you possibly can obtain decreases.

State unemployment tax

State unemployment tax (SUTA) helps fund unemployment applications and advantages to workers who misplaced their jobs by no fault of their very own. Whereas unemployment taxes are often employer-only taxes, there are a couple of exceptions to the rule. Alaska, New Jersey, and Pennsylvania require you to withhold cash from worker wages as nicely. 

SUTA tax is a proportion of worker wages. State unemployment tax charges differ from state to state. SUTA tax goes by different names. As an illustration, California has state unemployment insurance coverage (SUI), and Florida has a reemployment tax. Whatever the identify, all states have an unemployment tax.

Make certain to pay the SUTA tax to the state the place the work takes place. If in case you have workers working in several states, you’ll pay SUTA tax to every state the place the work is carried out.

To discover a state’s SUTA fee, merely join a SUTA tax account with the suitable state and the state will ship all the knowledge you want. 

Patriot’s Full Service Payroll makes payroll taxes a breeze.

  • Federal, state, and native tax filings and remittance
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Worker payroll taxes

There are some payroll taxes that solely the worker has to fret about, like federal, state, and native earnings taxes. Once more, workers who reside in Alaska, Pennsylvania, or New Jersey should pay state unemployment insurance coverage (SUI). 

Federal earnings tax

Federal earnings tax is an employee-only tax it’s essential to withhold from worker wages. There isn’t a single fee for federal earnings tax. Withholding for federal earnings tax is dependent upon the worker’s:

  • Pay frequency
  • Submitting standing
  • Annual earnings
  • Type W-4

Once more, federal earnings tax doesn’t have a flat fee. If you wish to calculate federal earnings tax by hand, use IRS Publication 15 for withholding tables. However, withholding federal earnings tax from worker wages doesn’t need to be sophisticated. On-line payroll software program can calculate payroll taxes so that you don’t need to. 

State earnings tax

Most states have a state earnings tax. So, there’s a superb probability that you just’ll need to withhold state earnings tax from worker wages. 

Some states use a flat fee for his or her earnings tax, whereas others use tax brackets to determine what fee workers pay. Go to your state’s Division of Income for extra info. 

The next states would not have a state earnings tax on worker earnings:

  • Alaska
  • Florida
  • Nevada
  • New Hampshire
  • South Dakota
  • Tennessee
  • Texas
  • Washington
  • Wyoming

Whereas New Hampshire doesn’t have a state earnings tax on wages, they do levy an earnings tax on dividend and curiosity earnings. 

Native earnings tax

Native earnings taxes assist pay for neighborhood enchancment initiatives and schooling. Native earnings taxes happen solely in states which have a state earnings tax. However not all states with state earnings tax can have native earnings taxes. 

Native earnings taxes fluctuate between municipalities. There are some widespread tax charges it’s best to find out about:

  • Flat tax fee: A single fee throughout all earnings ranges
  • Progressive tax fee: The tax fee will increase with worker earnings
  • Flat greenback quantity: All workers pay the identical greenback quantity, no matter their annual earnings

Test native legal guidelines to be sure you’re withholding the correct quantity of native earnings tax from worker wages. 

Who pays payroll taxes, worker or employer? Cheatsheet

Forms of Payroll Taxes Shared Payroll Taxes Employer-only Payroll Taxes Worker-only Payroll Taxes
Social Safety
Medicare
Further Medicare
Federal unemployment
State unemployment ✓ *
Federal earnings
State earnings
Native earnings

* Just for workers working in Alaska, Pennsylvania, and New Jersey. 

State-specific payroll taxes

Relying in your state, there could also be further state-specific taxes it’s good to find out about. Be looking out for issues like:

Contact your state to study who contributes to those payroll taxes and the tax charges. 

With Patriot’s Full Service payroll, your payroll taxes will be simpler than ever. Merely enter your payroll info, and we’ll deal with calculations, deposits, and the mandatory kinds. Strive it without cost right now!

This isn’t meant as authorized recommendation; for extra info, please click on right here.



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