Payroll Taxes and Your Business
If you own a business with employees, then you know there is a lot that goes into owning that business. Specifically speaking, there is a lot of paperwork and finances that go into owning a business. Unfortunately, many employers are not aware of just how much is needed to properly withhold taxes from employee paychecks. The payroll tax in Fort Worth, TX exists to help provide an insurance measure for current or retired employees. When calculated incorrectly, there can be serious ramifications. Let Don R. Walker, C.P.A. help today. Call us at 817-905-1040 to learn more.
What’s Payroll Tax?
How payroll tax works is that a percentage of employee salaries that are paid to them by their employer. In other terms, these are the taxes paid on the wages and salaries of employees. These taxes are used to finance programs like Social Security and Medicare. Payroll taxes are often classified two ways:
- Deductions from an employee’s paycheck
- Taxes paid by an employer based on an employee’s wages
With deductions, employers can withhold a certain amount from an employee paycheck every time. That amount withheld then goes back in to an employee’s Social Security and Medicare benefits. Taxes paid by an employer, however, are typically paid from an employers own funds to a particular employee. More often than not, employees of any business will see taxes withheld from their paychecks. It is generally easier for employers to operate that way than trying to calculate what is owed to each employee.
Examples of Payroll Tax
What is an example of payroll tax? Good question. The two most prominent payroll taxes fall under the FICA umbrella. FICA stands for Federal Insurance Contributions Act and requires employers to take out taxes for insurance benefits such as:
- Social Security
- Medicare
As of right now, employers are expected to withhold 6.2% for employes and 6.2% for employers, for a total of 12.4% for Social Security. For Medicare, a total of 1.45% of all wages paid to an employee are held. On top of FICA withholdings, employers must also hold a percentage of wages for:
- Federal Income Taxes
- State Income Taxes
- Federal Unemployment
- State Unemployment
The total amount that an employer withholds from their employee wages is very important. Inexperienced accountants can overlook things and ultimately cause more stress for employees when it comes time to file their own taxes. That’s why it’s important to work with a reputable CPA like Don R. Walker, C.P.A.. It’s the same idea as if you were looking for a contractor to provide residential roofing services. In either case, you want someone that is reliable, efficient, and accurate.
Why You Have to Pay a Payroll Tax
The payroll tax to business relation is important. If employers are not paying or withholding the correct amount in taxes, it can create serious consequences for their employees. Mistakes are often made, which is why it is recommended for businesses of any size to look into CPA services if they are concerned about their payroll tax calculations. Don R. Walker, C.P.A. is a great place to turn to. We offer every kind of accounting service you need to make sure your business is running smoothly.
All that being said, it is mandatory that employers either pay from their own funds or withhold a certain amount from their employee wages. Those withheld taxes are used in finance insurance programs, income tax program, and more. They provide a blanket or a security for employees during their time with a business and afterwards when they are retired. While it can feel like a nuisance at the time, these taxes are meant to make things easier for employees.
Payroll Tax vs Employment Tax
The employment tax is an all-encompassing term to refer to federal income taxes that are withheld from their paycheck and paid to the IRS on the employees behalf. The federal income tax is tax on the earned income of anyone employed with a business. Generally speaking, however, there is no real difference between a payroll tax and an employment tax because according to the IRS, everything falls under the employment tax umbrella. Meaning, federal income tax, Social Security, Medicare, and anything else are considered an “employment tax.” Meaning, if you are employed by a business, a certain amount of your wages are expected to go into financing for employee benefits.
The best way to break this down is as such:
- Payroll Taxes are designed to withhold funds that will provide a certain amount of insurance for current and retired employees. Funds are held for the insurance programs Social Security and Medicare.
- Employment Taxes are the taxes or finances that employees are expected to pay towards the federal income tax. These funds are withheld from an employee’s paycheck and paid to the IRS on the employees behalf.
Basically, there is no real difference because ultimately the money withheld from a paycheck all goes to the same place. But there are two terms to help identify what is being withheld for being an employee and what is being withheld to help an employee.
Frequently Asked Questions
- How much does the employer pay in payroll taxes?
- In the current market, employers are expected to pay 6.2% in Social Security taxes for the employee and 1.45% in Medicare taxes, also for the employee.
- What taxes does the employer pay?
- Employers are responsible for paying, or withholding, an employee’s Social Security tax and Medicare tax.
- How is payroll tax calculated?
- The most simplistic way to explain this is that the total amount of federal tax amounts are subtracted from an employees annual wages.
- Do I need to pay payroll tax?
- Generally speaking, if you are an employer with at least one employee then yes, you need to pay a payroll tax. But then there are things like the federal income tax which employees are expected to pay.
Contact Don R. Walker, C.P.A. for More Information
Reach out to Don R. Walker, C.P.A. today, 817-905-1040, for help with your employee payroll tax in Fort Worth, TX.
An offer in compromise is a tax resolution and agreement between an individual or business with the IRS that allows you to settle for a lesser amount than what taxes are owed. While there are many reasons one may file for an offer in compromise, the desired outcome is always that the IRS accepts your offer and will work with you. It can be a very detailed process to start, which is why we have compiled a few tips on what you can do when filing for an Offer in Compromise.