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Payroll Tax Services

Employer's Payroll Tax Guide 

During tax season, employers may scramble to get their paperwork in order, and this can cause them to make mistakes during tax season and incur fees and penalties - especially if they don't have help from a payroll service provider. That's why we put together this Employer's Payroll Tax Guide. Explore the guide to ensure employers like you are always prepared.

What are Employer Payroll Taxes?

Employers must deposit and report employment taxes regularly, typically quarterly for most businesses. In addition, employers withhold taxes from their employees and are required to pay their share of taxes, which are called employer payroll taxes. These taxes include Social Security, Medicare, and state and federal unemployment.

How are Employer Taxes Paid?

Employers will pay employment taxes and report wages, tips, and other compensation paid to employees by filing the required form(s) to the IRS annually, typically quarterly. Employers usually manage payroll taxes through payroll companies and software that assist with maintaining these payments and records for an organization.

What are the Different Kinds of Employment Taxes?

Payroll or employment taxes are federal and state taxes based on employee taxable compensation. In addition, businesses are responsible for several taxes that must be withheld from employees or paid by the employer during the established period, including:

Federal Income Tax
Employers withhold federal income tax from employees' wages based on information from the employee's form W-4 and Withholding Certificate and the appropriate withholding table and methods provided by the IRS. 

Withholding federal income tax from an employee's wages is meant to cover what they would owe when it comes time to pay their taxes each spring, including Social Security and Medicare taxes and an additional Medicare tax.

State and Local Income Tax
If an employer hires an employee working in a state or local municipality with income taxes, they must withhold and report those taxes withheld. Tax laws vary depending on the state in which an employee works. For example, Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not have an income tax. However, some cities have income taxes requiring additional withholding.

Social Security and Medicare Taxes (FICA)
Employees and employers pay Social Security and Medicare taxes equally. Employers can determine the amount of withholding for Social Security and Medicare taxes by multiplying each payment by the employee tax rate, updated yearly.

OASDI Social Security
The Social Security tax has a wage base limit, which may change yearly. The wage base limit is the Old Age, Survivors, and Disability Insurance (OASDI). It is used to provide benefits to people who have retired, dependent children, spouses, and disabled individuals who have not reached retirement age.

The Medicare tax is a payroll tax that funds the Medicare program in the US. Medicare is a federal health insurance program that provides coverage to people 65 and older, those with disabilities, and people with certain medical conditions. The Medicare tax comprises the Medicare Hospital Insurance (HI) tax and the Medicare Supplemental Medical Insurance (SMI) tax.

Federal Unemployment Tax Act (FUTA)
The Federal Unemployment Tax Act (FUTA) is paid by employers based on the FUTA wage base and can differ from state to state. The FUTA funds federal assistance to states so they can cover unemployment benefits paid to employees terminated from their jobs. This tax applies only to the first $7,000 from each employee's annual wages (as of 2023). In addition, employers may receive a credit that reduces the tax unless the state is a credit reduction state.

Additional Medicare Tax
Employers must also withhold Additional Medicare Tax on an individual employee's wages and compensation if it exceeds a certain amount in a year. As of 2023, this tax is 0.9% of earned income over $200,000 ($250,000 for joint borrowers). The employer must begin withholding this tax in the pay period the employee's wages exceed the set amount. Employers don't pay a matching tax for the Additional Medicare Tax as they do with the Medicare tax.

W-4 Employee Income Tax
This income tax withholding is based on information from employee Forms W-4, and employees pay it.


Employer Payroll Responsibilities

As you can imagine, staying compliant with tax laws is crucial to your business's success. As an employer, fulfilling your payroll responsibilities is essential to this process. These duties include:

  • Depositing tax dollars on behalf of your workers
  • Calculating income tax deductions from their paychecks
  • Preparing Payable and Receivables Reconciliation reports
  • Paying your share of payroll taxes
  • Utilizing financial reports to track payroll expenses
  • Filing tax returns for payroll
  • Creating a deposit schedule for employee taxes
  • Producing quarterly reports on withheld and deposited employee taxes
  • Submitting annual reports to the Social Security Administration and employees on employee tax payments

By fulfilling these responsibilities, you avoid penalties and fines and ensure that your employees receive their total wages without any discrepancies. Additionally, you can use the financial reports generated to analyze your business's payroll expenses and make informed budgeting and resource allocation decisions.

Employer Payroll Tax Compliance

Payroll tax compliance is crucial for employers to avoid high fines and trouble from the IRS. Keeping up with rules and regulations for compliance can help ensure businesses are up to date on vital deductions and credits they may need to be made aware of. 

Here are a few areas that often give employers a hard time come tax season:

Missing Tax Deadlines
If a business ignores the deadline to file taxes, it will get hit with a 5% per month penalty from the IRS that increases until the company files its tax return. However, if an employer thinks they might miss the deadline, they can file for an extension.

Incorrect Tax Forms
Missing forms or including incomplete information will delay processing or even an audit. Various forms, schedules, and election statements are required when you file, such as Form W-2 and 1099s, and it can become pretty overwhelming to keep up.

Forgetting Deductions
Another mistake business owners often make is failing to deduct expenses, such as home office deductions, legal fees, marketing expenses, travel costs, and tax preparation.

Employer Tax Returns and Deposits

Employers must file payroll tax returns and deposit employment taxes based on deadlines set by the IRS. If an employer misses a crucial deadline for returns and deposits, they could be hit with extensive fines and penalties.

Here is the list of employment tax forms from the IRS:

  • Form 940 is known as the Employer's Annual Federal Unemployment Tax Return.
  • Form 941, which is an Employer's Quarterly Federal Tax Return.
  • Form 943 is called the Employer's Annual Tax Return for Agricultural Employees.
  • Form 944, which is the Employer's Annual Federal Tax Return.
  • Form 945 is the form for the Annual Return of Withheld Federal Income Tax
  • Form CT-1 for an Employer's Annual Railroad Retirement Tax Return
  • Form CT-2, which is the Employer's Annual Railroad Retirement Tax Return
  • Form 8027 is the Employer's Annual Information Return of Tip Income and Allocated Tips


Depositing and Reporting Employment Taxes

Employers must deposit federal income tax and Additional Medicare tax withheld as well as employee and employer social security and Medicare taxes based on a set deposit schedule. There are two deposit schedules, semi-weekly and monthly, and the schedule used is determined based on various factors

Deposits for the FUTA Tax must be made for the quarter within which the tax due exceeds $500 by the end of the month after the end of the quarter.

WOTC: How to Save Money on Employment Taxes

One way employers can save money on employment taxes is through tax credits, and every employer should be taking advantage of the Work Opportunity Tax Credit (WOTC). So what exactly is WOTC? This tax credit encourages businesses to employ individuals from certain groups that have faced barriers to finding employment by returning some of the employment taxes paid throughout the year based on the organization's hiring practices. 

Learn more about the requirements for WOTC and how Proliant ensures businesses get all of the tax credits available here: Why You Should be Taking Advantage of WOTC in Your Business.

Options for Managing Payroll Taxes

Don't let the daunting task of paying taxes weigh you down. Fortunately, there are skilled professionals available to manage your payroll obligations with ease:

Payroll Manager
A good payroll manager will oversee your entire payroll process. They'll handle all the necessary tasks, from state and federal tax payments to collecting voluntary deductions, leaving you free to focus on growing your business. This role is vital if you have employees across different states, each with its unique pay structure. Look for candidates with solid time-management and productivity skills to ensure they can handle the job with ease.

Payroll Specialist
A payroll specialist should have the skills and experience to manage all aspects of your company's payroll, from updating employee banking information to troubleshooting any issues. They can handle your payroll needs, from calculating salaries to deducting taxes. They can also manage employee benefits, track time and attendance, and generate detailed reports to help you make informed financial decisions. Outsourcing your payroll to a specialist can free up valuable time and resources to focus on growing your business. Be sure to find a detail-oriented payroll specialist with a strong background in payroll management.

Payroll Clerk
Payroll clerks need to ensure that the workforce is paid accurately and punctually. They are responsible for maintaining a meticulous record of time sheets, managing payroll software, flagging payment discrepancies to the HR manager, withholding employee taxes, and issuing manual checks when required. When looking for a candidate, it's imperative to seek out candidates with exceptional data entry skills, as this guarantees the accurate inputting of payment information. This role demands accuracy, attention to detail, and top-notch organizational skills - all critically important to the company's success.

Payroll Tax Services
Payroll tax professionals, like those found at Proliant, ensure businesses are compliant and pay the necessary taxes when they are due. Proliant is a payroll company that provides organizations with accurate reporting and all of the tax credits available, saving employers a lot of money and headaches throughout the year. 

Contact Proliant to learn how our online payroll services and years of payroll tax experience can help your business thrive.

Frequently Asked Questions