Keeping Tabs of Payroll Taxes
Payroll is one of the most important issues everyone deals with whether you’re looking at it as an employer or employee. In addition to this, both also look for payroll taxes with a detailed eye and one should be most careful when calculating them so that the right amount is deducted from the employee’s pay each time. Payroll taxation is required by law and the amount collected should be handed over to government agencies instructed to collect them.
Basics of Payroll Taxes
Payroll taxes include various types of amount withheld including federal income tax withholding, Social Security tax withholding, Medicare tax withholding, state income tax withholding and other local tax withholding such as state unemployment insurance, state disability insurance, school district, county or city taxes. In addition, there is also what is known as voluntary payroll deductions which are withheld from an employee’s gross pay only if they agree to it. These deductions are tied to benefits an employee has participated in. These may be health insurance premiums, life insurance premiums, retirement plan contributions like 401k plans, stock purchase plans and others. Calculating these mandatory and voluntary deductions can be done through payroll software that helps employers track them with accuracy.
Employer responsibility does not end with calculating payroll taxes. Employers are also tasked to pay their share of the payroll taxes and making sure they are deposited to agencies whenever these amounts are withheld from paychecks of personnel. There are paper works such as reconciliation reports, financial reports which deal with payroll expense accounting and filing the tax returns as they fall due.
Payroll taxes also include a portion shared by employer and this are not deducted from employee’s paychecks but is above their gross pay. It includes taxes on Social Security, Medicare, Federal unemployment and state unemployment. Social Security and Medicare taxes are part of the legislation known as Federal Insurance Contributions Act which mandates that both employer and employee share in paying them regularly in equal amount. When added up, FICA taxes come up to 15.3%.
When filing all these tax payments, each type uses a different form that employers and employee will need to fill up and sign. These forms are Form 940 or 940EZ for the annual federal unemployment tax return, Form 941 for the quarterly returns, Form 945 for annual income taxes and Form W-2 for wage and tax statements. It is complicated in some ways which is why employers will generally get the help of experts such as accountants on these matters.