The Basics of Payroll Taxes – What Every Employer Needs to Know

Payroll taxes are the taxes employees and employers pay on wages, tips, and salaries. These taxes include federal, state, and local taxes and FICA taxes, which are taxes for Social Security and Medicare. These taxes are all taken out of an employee’s wages. Payroll taxes are a big part of running a business, and it’s essential to understand what they are when to pay them, and how to file for them.

Payroll Taxes

How payroll taxes work? Payroll taxes are a part of the United States social insurance program. They cover federal and state programs like Social Security, Medicare, and unemployment insurance. They fund other government services, including public or private health care benefits and paid family leave. Employees pay payroll tax based on a percentage of their salary or wages. These taxes are regressive, affecting lower-income individuals more than higher-income ones. That means you may have a significantly lower paycheck than your actual gross pay. In addition to payroll taxes, employers must also withhold and deposit certain employment taxes. These include federal income taxes, Social Security and Medicare taxes, federal unemployment taxes (FUTA), and Additional Medicare Taxes for eligible employees. Each jurisdiction has different laws and requirements, so consult an accountant or payroll professional for more information. 


The most important part of payroll tax management is ensuring the right amount of taxes is withheld from your employees’ paychecks. This means you must know how to withhold federal, state, and local income tax, Social Security, Medicare, and unemployment taxes. Payroll tax withholding can be complicated, but it is a vital part of the income tax process for any business owner. The IRS, SSA, and most states require that employers withhold and deposit these taxes. Unlike income tax, which is a percentage of each employee’s earnings, FICA (Social Security and Medicare) taxes are a fixed amount that must be deducted from every paycheck. Employers must use the appropriate method and withholding tables based on an employee’s Form W-4 and Employee’s Withholding Certificate to calculate and withhold these taxes. The IRS offers a free online withholding calculator to help you estimate your taxes for the year. It will ask you to provide your most recent pay stubs and income tax return to see if you need to change your withholding. The result can help you avoid having too much or too little withheld from your paychecks or prepare your taxes more efficiently and accurately.


Knowing your tax responsibilities is one of the essential parts of running your small business. This is particularly true when it comes to payroll taxes. Specific dates must file. Understanding how these taxes work, which forms, and when payments need to be deposited is critical to any tax-related strategy. Payroll tax filing is figuring out how much to withhold from employees’ wages and then filing that with the IRS. You use a form called a W-4 to figure out how much to withhold based on your employee’s household income and other financial circumstances. You then file that information with the IRS and other tax agencies to get a refund if you don’t owe any tax or pay an overpayment if you owe more than expected. Other payroll-related taxes include federal income tax and state or local taxes. The best way to keep track of all these tax obligations is to create a calendar and stay on top of any due dates. This will allow you to avoid penalties and meet your employer’s tax responsibilities. Consider using an online payroll service to help with this critical task. As a bonus, these services often offer other benefits, such as free employee training and payroll consultations.


The remitting of payroll taxes is a part of every employer’s responsibility. Federal and state governments use the revenue from these taxes to fund programs like Social Security, healthcare, workers’ compensation, and more. Typically, employers will withhold these taxes from their employee’s wages, then send them directly to the relevant agencies by a specific date each month or quarter. Failure to remit payroll taxes can result in significant penalties, so doing so is essential. This can include filing correct forms, ensuring your payroll system is working correctly, and making sure that you’re keeping records of everything you do. Employers must also ensure that their employees receive the correct withheld amounts from their paychecks based on their tax filing status, the number of allowances and dependents, and other factors. The IRS uses a formula to calculate the amount of federal income tax that must be withheld, but this percentage varies from employee to employee. There are many different remittance options for payroll taxes, including semi-weekly, monthly, and annual deposits. Most financial institutions have a cut-off time for making tax deposits, so they arrive before.