Employers are required to withhold federal income tax and other taxes from their employee’s paychecks every week and provide these withholdings to the IRS. The amount to be withheld depends upon the business, the employee’s wages, tax breaks that the employee qualifies for, and other taxes. To calculate how much to withhold from an employee’s wages, you may use Form W-4’s withholding tables. These can be found in Publication 15, Employer’s Tax Guide.
Taxes to Withhold
Usually, an employer needs to withhold the following taxes from an employee’s pay:
- Federal income tax
- Medicare and Social Security taxes
- Additional Medicare tax
Tips and other compensation paid to an employee are also added to wages for tax purposes. Generally, employers pay a part of the social security and Medicare taxes of their employees. As an employer, you may also need to pay the Federal Unemployment (FUTA) tax and self-employment tax.
Employers must report taxes they deposit by filing tax forms 940, 941 and 944.
Depositing and Reporting
There are two deposit schedules: monthly and semi-weekly. To determine which schedule you should use, consult Publication 15 if you use Forms 941, 944 and 945, and Publication 51 if you use Form 943. Failure to deposit withholdings on time can lead to a penalty of up to 15 percent.
Employers can transfer funds via the Electronic Federal Tax Payment System (EFTPS), to make federal tax deposits. It is the most secure, convenient and quickest method for making tax payments.
At the end of the year, employers need to prepare and file Form W-2, Wage and Tax Statement, to report their employees’ wages and other income.
To stay compliant with tax laws, employers must ensure that they accurately calculate the taxes to be withheld from each employee’s paycheck. They may also want to learn about their tax obligations regarding independent contractors and part-time workers, to ensure that they correctly handle all of their tax duties.