Payroll Tax Relief

What is Payroll Tax?

Employment taxes are taxes individuals, businesses and any of their employees are expected to pay to federal, state, and local agencies. Employers refer to this as a “payroll tax” . There are a number of different types of taxes withheld from employees by their employers as well as those for self- employed individuals. Self-employed business owners must pay self-employment which includes Social Security and Medicare tax. If the IRS believes any individual or business has not paid these taxes, they are liable for penalties.

Types of Payroll Taxes

Income tax must be withheld from employees paychecks. Employees are able to adjust their tax withholdings by filing a W-4 designating the number of withholding allowances they want to claim. It’s advisable to come close to their overall tax liability at the end of the year. If done correctly, employees can avoid owing huge amounts of money in taxes when it comes to filing their yearly tax return. There are a number of different types taxes that should be withheld from employees and then immediately deposited to the IRS after payroll including:

Fica covers two tax programs, Social Security and Medicare. This tax rate doesn’t change but it may be more or less depending on an employees overall earning during a given year.

This tax is about 1 percent of the first $7,000 paid to an employee and paid fully by the employer. The federal unemployment insurance payroll tax is 6.2 percent of the first $7,000 of earnings. Different states have their own unemployment tax programs for employers. They receive 5.4 percent credit in their federal tax payment, reducing the tax rate to 0.8 percent.

This is a federal-state program. Financed through federal and state employer taxes. The federal side of the program is FUTA. The unemployment tax differs from state to state. The program is based on experience-ratings. Meaning that within a state, firms that lay off a higher percent of employees and their workers collect a greater amount of unemployment benefits and pay much higher tax rates than businesses that lay off fewer workers.

Cities may impose a payroll tax that is usually paid by both employee and employer and vary in range.

Employers must pay into state-run funds that provide benefits for workers who get injured or sick because of their work. The benefits are governed by state workers comp. laws and are paid by employer contributions to workers compensation funds.

often called SECA taxes are like FICA taxes in which they cover Social Security and Medicare taxes for those who are self-employed. If an individual makes over $200,000 an additional Medicare tax is required. The tax is determined by the individual's net income. The rate is 12.4% for Social Security, plus 2.9% for Medicare, totaling 15.3%. The annual maximum is $132,900 of all earnings subjected to Social Security. In 2020 the maximum is $137,700. If you make more than $200,000 you will have to pay an additional tax of 0.9% for Medicare.

Is it illegal to withhold payroll taxes from the IRS?

Employers are required to withhold taxes for their employees and deposit these taxes to an authorized bank or financial institution. Businesses are also responsible for filing the FUTA (The Federal Unemployment Tax Act) return annually. Unfortunately, any employer who does not comply with employment tax laws may be subject to criminal and civil sanctions if they are willfully failing to pay employment taxes. This could also lead to heavy penalties, so it is important for any business to calculate the amount of payroll taxes owed and to pay them on time. It is the responsibility of both the employer and the employee to ensure taxes are being taken out correctly as the employee could also be liable to paying additional taxes after filing their tax return should they not have filled out their W-4 correctly. It’s typical for any business to withhold their employees wages for tax purposes but it’s not always the case. Some businesses hire their employees as independent contractors and are not required to withhold their taxes. Independent contractors are responsible to pay their taxes and should receive 1099 forms from their employers. If the independent contractor earns less than $600, they will not receive a 1099 but will still have to report the amount earned to the IRS. Examples of an Independent Contractor

Next Steps:

There is a lot of responsibility when it comes to obeying Employment tax laws. Whether you’re self-employed, employed or a business owner, taxes are going to be something you’re obligated to file. Luckily, we are here to help with some of that responsibility. Contact us today and see how we can help you with your employment tax situation. Check out more of our IRS tax resolution services.

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