" " Understanding Employment Taxes - IRS Solver | Employment Taxes " " " "

Much as we may resent them, two inevitable events happen to each of us when we enter this world; one is the payment of employment taxes, the other is a visit from the ‘Grim Reaper’ at some point in time.

The Right Way to Proceed

Understanding Employment Taxes goes a long way to accepting them and paying our dues. Ignoring tax problems will not whisk them away! In the U. S. A., all employers are required to deposit and report employment taxes collected from employees to Inland Revenue Services (IRS). This means that employers must pay over federal income tax deducted along with the employer/employee contributions collected in respect of social security and Medicare taxes.

Click here to view the specific Employment Tax forms and due dates.

At year-end, employers need to prepare and file Form W-2, which is a Wage and Tax Statement to report wages, tips and other compensation paid to an employee. Use Form W-3 – Transmittal of Wage and Tax Statements – to upload the Form W-2 to Social Security Administration.

Withholding Federal Income Tax

Employers are responsible for withholding federal income tax from employees’ wages. To calculate how much tax to withhold, use the employee’s Form W-4 and withholding tables described in Publication 15, Employer’s Tax Guide.
It may seem obvious, but you must deposit your withholdings to IRS; requirements for depositing, as explained in Section 11 of Publication 15, vary based on your business and the amount you withhold.

Collecting and Payment of Social Security and Medicare Taxes

Employers are required to withhold the employee contribution to social security and Medicare taxes from the wages, and pay a matching amount as the employer portion. To calculate how much tax to withhold, use the employee’s Form W-4 and the methods described in Publication 15, Employer’s Tax Guide and Publication 15-A, Employer’s Supplemental Tax Guide. You must deposit the wages you withhold.
Note: The employee tax rate for social security is 6.2%. The social security wage base limit was $127,200.

Additional Medicare Tax

Since January 2013, employers are responsible for withholding the 0.9% Additional Medicare Tax on an employee’s wages and compensation that exceeds a threshold amount based on the employee’s filing status. There is no employer match for the Additional Medicare Tax. You are required to withhold Additional Medicare Tax for pay periods in excess of the threshold amount.

Self-Employment Tax

As the name suggests, Self-Employment Tax (SE Tax) is a social security and Medicare tax primarily covering self-employed individuals. It is similar to the social security and Medicare taxes withheld from the pay of most employees.

Touching Briefly on Federal Unemployment (FUTA) Tax

Employers report and pay FUTA tax separately from Federal Income tax, and social security and Medicare taxes. As the employer, you pay the FUTA tax out of your own funding. It is important to note the employees do not pay this tax.

Nightmare with Employment Taxes?

Employment Tax is a complex matter that takes years to understand and relate to properly. Even then, rule changes come about thick and fast, and just when you learned all the answers, they change the questions! Just know that regardless of changes and updates, Employment Taxes must be dealt with. The money you withhold as an employer technically belongs to the employee and is due the IRS. Should you fail to proceed, the IRS will start a collection process known as the Trust Fund Recovery Penalty.

Do you owe more than $10,000 in back taxes? Protect yourself. Protect your business. Contact IRS Solver for a consultation.


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