Understand employer payroll taxes and the complexity of calculating the correct amounts, including contributions to Social Security and Medicare. Learn the importance of accurate payroll tax management to avoid potential penalties.
By Brad Nakase, Attorney
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Did you know that in addition to the tax that is withheld from an employee’s paycheck, employers also have to pay taxes on the wages they pay to their staff? They are called employer payroll taxes. Often, employers have to split the cost of payroll taxes like Medicare and Social Security with their employees. This is what makes payroll so complex because in addition to ensuring everyone gets paid for their work correctly and on time, you need to calculate employer payroll taxes, where amounts vary depending on a number of factors. Here’s everything you need to know about employer payroll taxes.
Just as employees pay taxes on their wages, employers pay taxes on their employee wages. These are called employer payroll taxes. Some common examples of payroll taxes include:
Employer payroll taxes will vary significantly between states, so it’s important to have expert support in your business to ensure you are paying your employer payroll taxes correctly.
Employer payroll taxes are not a flat rate like FICA taxes and other taxes. They are calculated as a percentage of the employee’s income and the income bracket they fall into.
It can be rather complex to calculate employer payroll taxes and carry heavy penalties if you do it incorrectly.
Employers need to calculate both employer payroll taxes and employee payroll taxes so they can withhold the correct amount from the employee’s paychecks. They also need to:
Depending on the business, employer payroll tax amount, and the state, employers may need to file quarterly federal tax returns and make payments. The employer can file Form 944 to if they want to file their employer payroll taxes annually instead of quarterly.
Employer payroll taxes are complex and nuanced, with a lot of variation depending on the income bracket and the state where the business is based. Most businesses seek accounting support or financial experts to ensure that their employer payroll taxes are done correctly. Incorrect payroll taxes can attract large fines and penalties, so it is important to seek out that support if you don’t understand the accounting.
If you don’t have a finance or accounting department, you can work with an accountant who specializes in payroll administration. Alternatively, you could hire a professional employer organization (PEO). Working with a PEO means that while you are the employer in practice, the PEO is the employer for tax purposes and, therefore, handles the employer payroll taxes.
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