Handling Employer Payroll Taxes

Handling Employer Payroll Taxes

As an employer, your payroll responsibilities extend far beyond issuing employee checks. Your company is also required to:

  • Pay the company share of payroll taxes;
  • Deposit tax dollars withheld from employee paychecks;
  • Prepare reconciliation reports and financial reports on payroll expenses;
  • File payroll tax returns.

Related Article: Taxes to Withhold for New Employees

Types of Withholdings

Fulfilling those responsibilities involves setting up a system to manage employer-specific payroll deductions. These types of deductions can include the following mandatory withholdings:

  • FICA taxes (Social Security tax of 6.2 percent up to the annual maximum and 1.45 percent for Medicare );
  • Federal unemployment taxes (FUTA);
  • State unemployment taxes (SUTA).

FICA includes both Social Security and Medicare taxes, and they are paid by both employees and employers in equal measure; the above percentages represent the employer’s portion.

Employer-specific deductions can also include employer contributions to Section 125 (also called “cafeteria”) plans and retirement plans like 401(k)s. Contributing to these types of plans helps employers attract and retain a quality workforce and can also help your business save 7.65 cents for every dollar you contribute, since they reduce your FICA liability. They can reduce your workers’ compensation expenses as well by lowering the overall size of your payroll, which is the standard used to calculate the workers’ compensation coverage premiums.

Maximum Limits

Maximum limits are another important consideration to keep in mind while setting up employer-specific contributions. For example, the maximum taxable wage for Social Security is $118,500 in 2015. There may also be limits to the amount you can contribute to Section 125 plans, such as the annual limit to employer contributions to employee health savings plans.

For this reason, it’s crucial to set up an employer-specific deduction system that caps payments when a maximum amount is reached. A robust system will not only help you avoid costly mistakes, it will help you track your contributions so that you can accurately report them as required by law.

Help from a Payroll Service

Since setting up employer-specific deductions can be a detailed and time-consuming process up front and can require alterations as tax rates and contribution regulations change, many employers rely on a payroll service to take care of the task for them.

A sophisticated payroll service can define limits to ensure employers don’t continue to make contributions after maximum amounts are reached. They can also provide a convenient way to link deductions to direct deposit or vendor payment accounts to streamline the employer’s workload. Another advantage of using a payroll service is that they can manage complex garnishment calculations and issue payment checks to ensure compliance with state or federal orders.

As you consider setting up employer-specific deductions, it pays to keep the various elements involved in mind. It may also be beneficial to consider using a payroll service so you can focus on running your business rather than handling complex payroll issues.

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Rick Gossett

Rick Gossett

Rick Gossett has been COO of Tarkenton Companies for more than 20 years and is an expert in business operations, responsible for business software development, unique partnerships, business educational content, consulting, and more. Rick was the originator of Tarkenton Companies’ consulting services and, initially, personally answered every question. Before joining Tarkenton Companies, Rick owned and operated a private practice as a CPA. Prior to that, he was a Senior Manager at Pannell Kerr Foster in tax and audit, as well as Principal in Ernst & Young’s small business advisory group.