How Much Does An Employer Pay In Taxes For An Employee?

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Payroll tax is the tax from an employee’s wages, tips, or salaries. It is the employer’s responsibility to withhold the taxes from your employee’s paychecks.

In this article, we will go over how much needs to be taken out for payroll tax, as well as provide a better understanding of what each tax means. We will also go over how to report and deposit the payroll tax and what to do if you miss or have a late payment.

Key Takeaways:

• Along with federal taxes, employers may be responsible for paying state and local taxes.

• Self-employed individuals are responsible for paying 15.3% of payroll taxes themselves.

• Employers must report taxes by using Forms 941, 943, 944, 945, and 940.

• The IRS can charge a late fee if you miss a payment.

• Federal payroll tax includes social security, medicare, an additional Medicare rate, and federal unemployment (FUTA) rate.

How Much Does an Employer Pay in Taxes for an Employee?

1. Federal Payroll Tax. The federal payroll is about 15.3%. The employee covers 7.65%, and the employer covers 7.65%. Self-employed individuals who are sole proprietors or business owners are responsible for the full 15.3% of the federal payroll tax.

   The breakdown of the federal payroll tax rates for 2023 are:

   • Social security rate. 6.2% for the employee and 6.2% for the employer. A total of 12.4%.

   • Medicare tax rate. 1.45% for the employee and 1.45% for the employer. A total of 2.9%

   • Additional medicare. 0.9% for the employee when wages exceed $200,000 in one year.

   • FUTA tax rate. 6% for the employer on the first $7,000 paid to the employee.

2. State payroll taxes. Along with federal taxes, employers may also be responsible for state payroll taxes. The Most common state payroll tax pays for state unemployment insurance (SUTA tax), which the employer will cover 100% of.

   The amount you pay will be based on wage base. Wage base and tax rates vary for each state, so be sure to check your state rules first.

3. Local payroll taxes. Based on the location, determined by the Zip code, country, or municipality of where your business is located, you may have to pay a local payroll tax. This tax pays for local projects. Check with your local agencies to determine how much local tax must be paid.

Payroll Tax Definition

Payroll tax includes the taxes employees and employers pay on wages, tips, and salaries. For most employees, these taxes are deducted from their paychecks and paid to the government by the employer. This will include your federal, state, and local income taxes. Social Security and Medicare taxes can also be taken out during this time.

Employers will pay a share of some payroll taxes for their employees. This could result in your payroll tax liability doubling if you go from being an employee of someone to being self-employed.

Employers may also be responsible for withholding state and federal income tax, along with social security and Medicare taxes.

Employment Taxes

Employers must report and deposit any employment taxes. At the end of the year, employers must file Form W-2 and Wage and Tax Statements to report wages, tips, or any other form of compensation that is paid to each employee.

• Federal income tax. Employers generally have to withhold federal income tax from employees’ wages. To know how much to withhold from an employee, use the employee’s Form W-4 and Employee’s Withholding Certificate.

• Social Security and Medicare taxes. The employer generally withholds social security and Medicare taxes from the employee’s wages and generally pays the employer’s share of these taxes. These will have different rates. The social security tax is the only one with a wage base limit, which is the maximum wage subject to the tax for the year.

• Additional Medicare tax. Employers are responsible for withholding 0.9% in addition to the Medicare tax. This is on an employee’s wage and compensation that exceeds $200,000 in one calendar year.

• Federal Unemployment (FUTA) tax. Employers must report and pay the FUTA separately from the federal income tax and social security and Medicare taxes. Employees do not pay this tax, and it is not withheld from their pay. The FUTA tax is paid from an employer’s own funds.

• Depositing Employment taxes. You must deposit income tax that is withheld as well as the employer and employee social security, medicare, and FUTA taxes.

• Self-Employment tax. Self-employment tax (SE tax) is a social security and Medicare tax that is primarily for those who work for themselves. It’s similar to the social security and Medicare taxes that are withheld from the pay of most employees.

Depositing and Reporting Employment Taxes

There are two deposit schedules for when it comes to depositing your employment tax. It can be done monthly and semi-weekly. What you use must be determined before the beginning of each calendar year. To determine what you must use, review Publication 15 for Forms 941, 944, and 945.

The deposits for the FUTA tax, determined by Form 940, are required for the quarter within which the tax exceeds $500. This tax must be deposited by the end of the month following the end of the quarter.

Employers must report any wages, tips, or other compensation paid to an employee by filing the required form or forms to the IRS. Employers must also report taxes deposited by filling out Forms 941, 943, 944, 945, and 940.

• Form 941, Employer’s Quarterly Federal Tax Return. This is for employers who withhold federal income tax, social security, or Medicare taxes. This is done each quarter. This can also include any withholdings on sick pay and supplemental unemployment benefits.

• Form 943, Employer’s Annual Federal Tax for Agricultural Employees. This is for employers who paid wages to one or more farmworkers, and it was subject to federal income tax or social security and Medicare.

• Form 944, Employer’s Annual Federal Tax Return. This is only if you have received written notifications about this form.

• Form 945, Annual Return of Withheld Federal Income Tax. This is to be filed if an employer withholds or is required to withhold federal income tax from non-payroll payments.

• Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return. This is not withheld from an employee’s pay and is taken from the employer’s pay.

Penalties for Missed or Late Payments

If you have a missed or late payment, the IRS can charge a late fee if you do not deposit the employment tax. This is called a Failure to Deposit Penalty. The IRS will notify you if you owe a penalty. Tax penalties are:

• One to five days. 2% of unpaid amount.

• Six to 15 days. 5% of unpaid amount.

• More than 15 days. 10% of unpaid amount.

• More than ten after your first notice. 15% of unpaid amount.

Employer Taxes FAQ

1. What is the FICA Tax?

   FICA tax stands for Federal Insurance Contributions Act, and it is used for social security and Medicare. The total of this tax is 15.3 and is split evenly between the employee and employer.

2. Who has to pay payroll tax?

   Everyone has to pay payroll tax, and it is automatically taken out from their paycheck for most individuals. The employer is responsible for deducting the tax from their employee’s wages. The amount that is deducted from the paycheck is determined by the Form W-2 that an employee fills out at the start of their employment.

3. Does an employer pay the same amount of taxes as an employee?

   Yes, an employer generally pays the same amount of taxes as an employee. 15.3% of taxes will be taken out of an employee’s paycheck, 7.65% will be paid by the employer, and 7.65% will be paid by the employee.

   An employee will not pay the Federal Unemployment tax (FUTA), which is 6% for the employer on the first $7,000 paid to the employee.

4. What percent of taxes is taken out of a paycheck?

   15.3% of a person’s wages are taken out of each paycheck for taxes. 7.65% is covered by an employer, and 7.65% is covered by the employee. Self-employed individuals are responsible for paying the 15.3% themselves.

5. What is the difference between payroll taxes and income taxes?

   Payroll taxes are used to fund specific programs, and income taxes go into the general funds at the U.S. treasury. Everyone will pay a flat payroll tax rate up to a yearly cap, but income tax rates can be progressive and be based on an individual’s earnings.

Final Thoughts

15.3% of an individual’s pay is taken out to pay for taxes. It’s split evenly between employer and employee. It’s important for an employer to pay these taxes for the employee. These taxes are used for things like Social Security, Medicare, and some government employees’ salaries.

References

1. IRS – Understanding Employment Taxes

2. Forbes Advisor – Payroll Tax Rates (2023 Guide)

3. Investopedia – Payroll Tax

Author

Taylor Berman

Taylor is a freelance writer from Pennsylvania. Taylor got into writing because she enjoys writing articles that help people and loves creating stories that inspire. She earned a bachelor's degree in journalism and public relations with an interest in communications media from Indiana University of Pennsylvania.