Managing payroll taxes can be one of the more complex and time-sensitive aspects of running a business. But understanding the basics helps you stay compliant, avoid penalties, and keep your employees happy. This simple guide breaks down payroll taxes for business owners.
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What Are Payroll Taxes?
Payroll taxes are taxes imposed on employers and employees based on wages paid. They fund federal and state programs such as Social Security, Medicare, and unemployment insurance.
Types of Payroll Taxes
1. Federal Payroll Taxes
- Social Security Tax: Currently, 12.4% of wages (split evenly between employer and employee, 6.2% each) up to an annual wage limit.
- Medicare Tax: 2.9% of wages (split 1.45% each), with no wage limit. Higher earners may pay an additional 0.9% Medicare surtax.
- Federal Unemployment Tax Act (FUTA): Paid by employers to fund unemployment benefits, generally 6% on the first $7,000 of wages per employee, with possible credits reducing this amount.
2. State Payroll Taxes
These vary by state but often include state unemployment insurance and sometimes state income tax withholding.
Employer Responsibilities
- Withholding Taxes: You must withhold the employee’s share of Social Security, Medicare, and income taxes from their paycheck.
- Paying Employer Taxes: You are responsible for paying your share of Social Security, Medicare, and FUTA taxes.
- Filing and Depositing Taxes: Payroll taxes must be reported and paid to the IRS and state agencies on a regular schedule (monthly, quarterly).
- Providing Tax Forms: At year-end, you must provide employees with Form W-2 and file W-3 with the Social Security Administration.
Why Accurate Payroll Tax Management Matters
Incorrect payroll tax handling can lead to fines, interest charges, and audits. It also affects your employees’ benefits and tax returns. Proper payroll tax management ensures compliance and smooth business operations.
How Accountex Solutions LLC Can Help
Contact Accountex Solutions LLC today to learn how we simplify payroll tax management for business owners like you.