Employer’s Liability for Employment Taxes

By hrlineup | 30.01.2020

Employers have massive responsibility when it comes to managing taxes withheld from the pay of their employees. There are a wide range of these taxes, including social security, federal income and Medicare taxes. These among others form the employment or payroll taxes that a business will incur. Here is what the employer must prepare for: –

  1. Federal Income Taxes

These need to be collected from employees once they have started working. The employee needs to direct the employer to withhold these taxes in the right amounts as they must be paid. This is done through a W-4 form which is filled out by the employee. These taxes make up a percentage of the gross pay.

  1. Medicare and Social Security Taxes

These taxes are paid by bot the employer and the employee. Normally, they are held in trust over a period, and then paid when the designated time arrives. The employer responsibility for social security guides how these taxes are collected, so that they are manageable.

  1. Federal Unemployment Tax (FUTA)

This is a tax that an employer needs to pay, although, it is not withheld from the wages of an employee. A total amount of gross wages up to $7000 for each employer is subject to the FUTA taxes. This appliers for each calendar year. It is worth noting that this tax is paid separately, and it is not paid by employees.

  1. State Unemployment Tax (SUTA) is a payroll tax that all employers will pay at the state level. The funds that are collected through this tax are used to make payments to employees who are unemployed through no fault of theirs. This could be from layoffs for example.
  2. Self-employment Tax is for individuals who are working for themselves, as they still need to pay for Medicare and social security taxes.

Employer payroll taxes are subject to various conditions or responsibilities from the employer. These include reporting and withholding taxes as well as paying out the taxes that are required.

Managing Employment Taxes

To ensure that no taxes are missed, an employer liability payroll needs to be created. This should be done using payroll accounting software that can offer instant and detailed tracking. Businesses that are small and still growing may significantly benefit from outsourcing the payroll to make sure that it is done right.

As an employer, it is worth being aware of the consequences of not managing employment taxes well. The results of not taking responsibility include high fines and penalties. Furthermore, there is always someone in the organisation who has a personal responsibility for employer tax liabilities. This is put in place to ensure that the payments for the tax are always paid on time.

Federal payroll taxes for employers can be slightly complex, so they require careful attention when planning. They should also have an individual or team dedicated to making sure that all taxes are paid on time, and in the right amounts. Good business practices can go a long way in keeping these taxes low.