When you’re employed you don’t have to do a lot of things, like doing the computation for this and that, paying the taxes for this and paying your contribution to the government. Well, you still have to pay them with your own salary, but you don’t have to worry about the intricate processes done to have it portioned out. You just have to know the general information and that is it. Let your employer do the hard part for you. It’s not that they want to, it’s because they have to.
Your employer is responsible for taking out the required payroll taxes from your salary and make the payment to appropriate authorities. Some of these payroll taxes are paid by the employer and some are deducted from your salary. Employers do not and will never have any fun doing this responsibility, but being compliant is essential to keep the business running.
We will be doing a review of the major responsibilities of employers when it comes to handling payroll taxes. We will be including additional information about what payroll taxes are and why they are important.
What Are Payroll Taxes?
A percentage of every employee’s salary is taken out and transmitted to various tax agencies. This is what makes up a payroll tax. Payroll taxes are withheld by one’s employer from their employee’s salary. In other terms, payroll taxes are deductions taken out by employers from their employee’s salaries. These deductions are not used by your employer for their personal gains, but it is used to comply with the government-mandated laws. Payroll taxes are calculated based on standards and guidelines provided by the government agency that is responsible for handling taxes. Payroll taxes include federal income tax, social security tax, medicare tax, state income tax, and various local taxes.
- Federal Income Tax – All of the citizens of the United States of America are required to pay taxes. These taxes are used by the federal government for the benefit of the American people. Federal income taxes are spent on technology and education, and to provide the goods and services that the American people need.
- State Income Tax – In addition to paying for federal income taxes, the government also collects state income tax from the people living in a particular state. The state income tax is a fixed rate being deducted from an employee’s salary, but the rates vary from state to state. Not all of states in the US collect state income taxes. There are currently seven states who don’t and they are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Last April 15, the residents of New Hampshire, Tennessee, have been spared from paying for state income taxes from their salary. They pay their state income taxes through dividends and tax from investments.
- Various Local Taxes – Local taxes are collected in counties or municipalities in the form of property taxes, school district taxes, and insurance for disability or unemployment.
- Social Security Tax – This tax is used to fund Social Security programs. It is imposed both on the employer and their employee. It makes up 6.2% of the Federal Insurance Contributions Act or FICA. This tax is what is used to pay for disability, retirement, and what is called survivorship benefits that a lot Americans get every year.
- Medicare Tax – Medicare tax is collected so that the government will have funds to fund their Medicare Program. It is automatically deducted from an employee’s income. Both the employer and the employee is required to pay the medicare tax. They are both responsible for the 1.45% tax required by Medicare.
Why Is It Important to Pay Payroll Taxes?
Payroll taxes need to be paid or they will not incur IRS penalties. IRS penalties are huge and businesses would not want to pay a large amount for something that can be avoided. Allowing IRS to collect penalties from businesses is a law that is passed by Congress to ensure that businesses or companies do their part in paying the required payroll taxes on time. Employers or business who neglect doing their responsibility in paying the taxes may have to pay up to 15% worth of penalties.
What Are the Employer’s Responsibilities for Payroll Taxes?
Employees don’t have to go through filling out payroll forms and go looking for payroll hours calculators because those things are done by the employer. Your employer basically does the calculation and the transmission of your payroll taxes to the authorized government agency that handles taxes. Your employer is responsible for doing the following:
- Taking out appropriate taxes. Employers are responsible for taking out the appropriate taxes from their employees’ salaries. These taxes include federal income taxes, state income taxes, local income taxes, and the FICA taxes. The FICA taxes are the Medicare tax and the Social Security tax.
- Employers take care of half of the FICA taxes. Employers pay for half of the Social Security tax and Medicare tax, that is why the deductions for theses taxes in an employees salary is not that big.
- Transmit the taxes to the appropriate agency. After computing all of the payroll taxes by making the appropriate deductions, employers then pay or transmit the collected taxes to the agency where they need to be transmitted to. They will pay for their portion of the taxes and the taxes they have collected from their employees. The Social Security tax and Medicare taxes are paid or transmitted to the Internal Revenue Service.
- They take care of tax liabilities. Employers are tasked to report or submit the required tax forms to the appropriate agencies as mandated by the law.
- Provides other reports. Employers need to update all of the tax-related documents of their employees. That includes the employment status of the employee.
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