HR Insight: How to Deal with Employee Taxes
Employee Taxes – What You Need to Know.
Employers generally must withhold income tax from employees’ wages. To figure out how much employee taxes to withhold, you need to use the employee’s Form W-4, the appropriate method and the appropriate withholding table described in Publication 15-T, Federal Income Tax Withholding Methods. You’ll deposit your withholdings based on your business and the amount you withhold.
File returns four times a year, and at the end of the year, prepare and file Form W-2, Wage and Tax Statement, to report wages, tips and other compensation paid to employees. Each employee needs a copy. You will use Form W-3, Transmittal of Wage and Tax Statements, to transmit Form W-2 to the Social Security Administration.
Know the details
The situation can get complicated when both employee and employer have to contribute. For example, the current tax rate for Social Security is 6.2% for the company and 6.2% for the employee. For Medicare, the current rate is 1.45% for you and 1.45% for the employee. Also, an Additional Medicare Tax applies to an individual’s Medicare wages that exceed a threshold amount based on the taxpayer’s filing status. You’ll withhold an Additional Medicare Tax of 0.9% for single filers who make more than $200,000, and for married couples filing jointly, the threshold is $250,000, but if filing separately, $125,000. You don’t have to match this additional portion.
Employers report and pay Federal Unemployment Tax Act tax separately from federal income tax and Social Security and Medicare taxes. You pay FUTA tax only from your own funds. Employees don’t pay this tax or have it withheld from their pay.
Mark your calendar with key employee tax dates. The IRS has an Employment Tax Due Dates page with information on what you need to do and when you need to do it. The matching share of the Social Security and Medicare payroll taxes is collected as the Federal Insurance Contributions Act taxes, and your part is considered a business expense, not a liability. Because it’s a business expense, it can be written off at tax time.
Don’t forget the states
This is just the beginning of an employer’s responsibilities. You are likely subject to state withholding rules as well. It’s essential that employers be on top of the general rules and any annual rate changes. Understanding these tax issues is important since you bear the responsibility of fulfilling your tax obligations related to your employees. It’s important to send out payments on time to avoid penalties and late fees. Be sure to work closely with financial professionals to make sure you stay compliant.
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