How much payroll tax do I pay?

payroll tax documents

Who has to pay payroll taxes?

It has been said there are two thing certain in this life: taxes and death.  For a business owner, that second one includes payroll taxes. As your accountant and bookkeeper are getting things together to file your business taxes, you may be surprised what you paid for 2020 payroll taxes and wonder what you’ll be paying for payroll taxes for 2021. 

What exactly are payroll taxes anyway?  Payroll taxes are paid on the salaries and wages a company pays their employees and are indicated on the employee’s paystub. It shows up as FICA and MEDFICA , with a certain percentage coming from each employees check. 

The money from those taxes finance government programs like social insurance programs, Medicate, and Social Security. Over 23% of the revenue the government receives comes from these payroll taxes. It is the American government’s second biggest source of money.  

For FICA, 12.4% is accounted for employee’s check and for MEDFICA, 2.9% is accounted for from every employee’s check. That is over 15%, but not all of that is paid by the employee.  Half of those percentages is deducted from payroll checks and employers must match that with the other half. 

Employers must make a federal payroll tax payment and file reports and returns.  Employers are to provide every employee with a W-2 and contractors a 1099 reports that breaks down the compensation paid and any withholding amounts. The rules are complex, even more so than filing your basic income tax return. Non-compliance from an employer is bet with fines and stiff penalties. This is why it is important to have your company’s books and taxes reviewed by a certified accountant.

How will a payroll tax cut affect me?

A payroll tax cut reduces how much is deducted from each employee’s paycheck. It also cuts back the amount of money paid into the federal programs that are supported by payroll taxes like Medicare and Social Security. While it makes an employed person’s check go up, a payroll tax cut doesn’t do anything for people that are retired, unemployed, and children. 

Which is an example of a payroll tax?          

Examples of payroll taxes that are deducted from employee paycheck are: 

  • Medicare tax
  • Social Security tax 
  • Federal unemployment tax
  • State unemployment tax
  • Local tax
  • Local taxes

Is payroll tax the same as income tax?

As an employee, all you know is a hunk of money called payroll taxes comes out of your paycheck every payday, and then you have to file, and sometimes pay, income taxes too. What is the difference between          payroll taxes vs income taxes?  

Payroll tax is a percentage that covers the Medicaid, Social Security, and other federal programs. Income tax is filed with the federal, some state, and local agencies for the amount of money you gross annually. The basic difference between income tax and payroll tax is what each of these taxes’ funds. 

There are several factors that come into play when determining income taxes. Some of the factors include the W-4 form your employer gives you and your selected filing status on one of the 1040 forms. 

There are the payroll taxes and employee benefits are different from payroll taxes and income taxes. Employee benefits that are deducted from an employee’s check is for thing like: 

  • Health Insurance
  • Dental Insurance
  • 401k Contribution
  • Stock Options
  • Uniforms
  • And many other possibilities
person reviewing payroll

How can I avoid paying payroll taxes?

For an employer, getting a payroll calculator without taxes is often a focus. With approximately 10 percent of what you pay employees, 10% of that goes to taxes. However, because the government makes it so complicated, there are loopholes that allow employers to reduce their payroll tax costs legally with some strategic planning that an accountant or CPA would know. A brief touch on those loopholes: 

  • Accountable plans for reimbursing employee’s cost of entertainment and travel, tools, and any cost related to their job. Certain requirements must be met, again, verified by your accountant or CPA. 
  • An accountable plan is one that meets three requirements, which your CPA can clarify if you need those requirements.
  • Instead of a raise, consider paying for benefits and be exempt from payroll taxes. 
  • Have paid corporate directors, which are required for any corporation, including holding a directors meeting once a year. 

Taxes of any sort are not to be taken lightly. They each have directed funding and the money is needed for these as the government sees fit. If you have concerns, issues, questions about how much you are paying payroll taxes, talk with your CPA or an accountant.  At the end of the day, week, month, and year, it is important that you have paid what is determined to be your fair share, especially when it comes to filing the Social Security taxes.  When those aren’t paid, it affects your employees later when they file disability or retire. Call 817-905-1040 today for payroll tax help in Fort Worth, TX.