Paying payroll taxes

The responsibility for payroll taxes continues even after paychecks have been issued to employees.

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Published: February 17, 2011
Updated: October 10, 2014

Once you become an "employer" you will have to withhold taxes from your employees' pay and deposit these amounts with the appropriate tax agencies. As an employer, you/your company will also have to pay certain taxes based on the amounts you pay your workers.

Your payroll taxes are a combination of the taxes you withhold from your employee’s paycheck and those you, as the employer, pay directly. They may include federal, state, and where appropriate local/city income taxes, Social Security and Medicare taxes, federal and state unemployment taxes, and, in some states, disability insurance taxes.

"The FICA tax consists of both Social Security and Medicare taxes."

Statutory payroll tax deductions

Payroll tax deductions include the following:

  • Federal income tax withholding (generally based on withholding tables in Publication 15)

  • Social Security tax withholding (Employee normally pays 6.2%)

  • Medicare tax withholding (1.45% plus an additional 0.9% for employees with wages in excess of $200,000)

  • State income tax withholding where applicable

  • Various local tax withholdings (such as city, county, or school district taxes, state disability or unemployment insurance).

Voluntary payroll deductions

Voluntary payroll deductions are withheld from an employee's paycheck only if the employee has agreed to the deduction. Voluntary deductions pay for various benefits in which the employee has chosen to participate. Voluntary payroll deductions include but are not limited to the following:

  • Business health insurance premiums (medical, dental, and eye care)

  • Life insurance premiums

  • Retirement plan contributions (such as 401(k) plans)

  • Employee stock purchase plans (ESPP and ESOP plans)

  • Meals, uniforms, union dues, and other job-related expenses

Voluntary deductions can be paid with pre-tax dollars or after-tax dollars, depending on the type of benefit. Please check with your benefit provider to determine taxability. Third-party payroll vendors or professional grade payroll software will help you keep track of all tax-related payroll calculations.

Employer payroll tax responsibilities

The responsibility for payroll taxes continues even after paychecks have been issued to employees. The company is responsible for paying the employer's share of payroll taxes, for depositing tax dollars withheld from the employees' paychecks, preparing various reconciliation reports, accounting for the payroll expense through their financial reporting, and filing payroll tax returns.

"The responsibility for payroll taxes continues even after paychecks have been issued to employees."

Employer payroll taxes

Companies are responsible for paying their portion of payroll taxes. These payroll taxes are an added expense over and above the expense of an employee's gross pay. The employer-portion of payroll taxes includes the following:

  • Social Security taxes (6.2% up to the annual maximum)

  • Medicare taxes (1.45% of wages)

  • Federal unemployment taxes (FUTA)

  • State unemployment taxes (SUTA)

FICA taxes

FICA stands for the Federal Insurance Contributions Act. The FICA tax consists of both Social Security and Medicare taxes. Social Security and Medicare taxes are generally paid both by the employees and the employer, each generally paying half. For employees making less than $200,000, the combined employee and employer FICA rate is 15.3%. This 15.3% FICA tax is broken down as follows:

  • Social Security (Employee normally pays 6.2%)

  • Social Security (Employer pays 6.2%)

  • Medicare (Employee usually pays 1.45% plus an additional 0.9% for employees with wages in excess of $200,000)

  • Medicare (Employer pays 1.45%)

Reporting payroll taxes

Employers are required to report their payroll tax obligations and to deposit payroll taxes in a timely manner. Failure to do so is a violation of the rules and regulations of all payroll tax jurisdictions and can lead to penalties, interest, as well as sanctions, and possibly a loss of a business license to operate. Some of  the reporting requirements include:

  • Depositing federal, state, and local tax withholdings

  • Filing of Employer's quarterly federal tax return (Form 941)

  • For some businesses, filing of Employer’s annual federal withholding tax return (Form 944)

  • Filing of Employer’s Annual Federal Unemployment Tax Return (Form 940 or 940EZ)

  • Filing of Employer’s Annual Backup Federal Tax Return (Form 945)

  • Filing and depositing of Employer’s Quarterly State Unemployment Tax Returns

  • Filing of Employer’s state and local tax returns

  • Wage and tax statements (Form W-2 & 1099)

To speak with a Wells Fargo Business Payroll Sales Specialist about your specific business payroll needs, please call 1-800-421-4714 or request a specialist contact you.