Payroll taxes are basically taxes that employers and employees pay. This means that you, as the employer, withhold these taxes from the pay of employees then pay them to the proper tax agencies.
To determine the amount of taxes, you should calculate an employee’s gross pay and based on the gross pay. How? Subtract a certain amount to account for the federal income tax according to the most recently completed W-4 form of the employee and then subtract a certain amount for the Federal Insurance Contributions Act (FICA) taxes.
Payroll Tax Inclusions
Payroll taxes required by the federal government includes the following components:
Federal Income Tax Withholding
These are taxes that you withhold from your employees in order to pay for federal income taxes.
These are taxes used for paying Medicare and Social Security benefits. These are shared by employers and employees, with half of the amount due being deducted from the pay of an employee, and the other half to be paid by the employer, explains a top tax accountant in Utah.
Do note, though, that payroll taxes likewise include FICA tax payments made by businesses, which is the same amount that employees pay. Depending on which state you live and operate your business, the payroll taxes could also comprise state income tax withholding. Additionally, some states require extra payroll taxes, including tax funds for worker’s compensation, unemployment tax, and disability funds.
A Vital Warning
If you fail to pay your payroll taxes or pay them on time, you would be subjected to hefty monetary fines. Fines start at 2% of the amount past due if you send in the payment five days late. The fine could increase up to 15% if you send payments 10 days late and the Internal Revenue Service (IRS) already sent you a notice of late payment. If the IRS believes that you’re intentionally avoiding remitting your payroll taxes, you could face a fine up to $500,000 and up to five years of imprisonment for tax evasion.