Understanding payroll tax withholding is crucial for business, not only to ensure the employees are making appropriate contributions, but also to prevent problems with the IRS. As an employer, your company’s payroll tax withholding is a legal obligation and it is your responsibility to ensure the withheld taxable portions are paid in a timely manner. The amount of taxes to be withheld will be based on your employee’s W4 forms submitted to the federal, state and, in some places, city taxing authorities.
Payroll taxes withheld
A key component of understanding and properly filing payroll taxes, is knowing the taxes that are often associated with the payroll process. By understanding which taxes are withheld and what governement entity requires them, you can better stay on top of payments, reducing your risk of penalties for paying late or failing to pay at all. Payroll taxes include:
- Federal income tax: This will be withheld to satisfy income taxes that an employee owes the federal government.
- FICA taxes: These taxes based on the Federal Insurance Contribution Act and are paid towards Social Security and Medicare. The employees will pay their portion, and employers are required to match this amount. These taxes are removed before the amount is taxed at the federal, state, or city level.
- State and city taxes: Most states require income tax to be withheld, and employees may also have to have local taxes withheld depending on where the business is located and what city or county they live in.
FUTA payments are made by employers to help provide funding for the federal government’s oversight and regulation of unemployment programs in each state. FUTA taxes must be paid quarterly, and an annual form must be filed. In 2020, the FUTA tax rate is 6% on the taxable base wage, which is the first $7,000 that the employee is paid during the current calendar year. The payment schedule for FUTA taxes is as follows:
- Quarter 1 payments are due on or before April 30th.
- Quarter 2 payments are due on or before July 31st.
- Quarter 3 payments are due on or before October 31st.
- Quarter 4 payments are due on or before January 31st.
Another payroll tax that employers are required to report and pay is State Unemployment Tax, which will fund the unemployment benefits to the state for employees who file for benefits when they are out of work. SUTA can also be classified under different names depending on the state you are filing. It can also be referred to as state unemployment insurance, SUI, or reemployment taxes. In most states, SUTA will be an employer-only tax, and employees will not be responsible for contributing. In some states, certain entities, such as non-profits, will be exempt from paying SUTA.
The SUTA rate for each state will differ as well as the taxable wage base that the percentage affects. The percentages can run anywhere from 0.65% to 6.8%, and each company will be notified of their rate when they register in their state as a business. SUTA rates can also be based on industries, with industries that see higher unemployment rates throughout the year, such as construction, paying a higher rate.
Failing to pay payroll withholding taxes can result in severe penalties as well as high-interest rates from the IRS, so staying on top of required payroll contributions is crucial to staying out of trouble with the IRS. If you are unsure of the payroll withholding you are required to make or are already facing issues with the IRS regarding withholding, Kundra Tax Law can help. Don’t wait for the problem to become compounded, contact us today for a consultation.