What Taxes Does The Employer Pay? Employer Taxes Explained

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When you look at your paycheck, you probably notice a percentage of taxes taken out of your paycheck. Yes, your employer pays for some, but the employee has some responsibility too. Employers handle the administrative responsibility for the payment of taxes, whether by paying or having it deducted from your paycheck. Still, in some cases, they also handle paying certain taxes. Let’s explore how payroll taxes work and what the employer versus the employee is responsible for when it comes to paying. 

How payroll taxes work

Payroll taxes are the employers’ responsibility to deduct from their employees’ wages, calculate their portion, deposit tax payments and file the correct returns with the government. Paying payroll taxes is an enormous responsibility. Many companies hire an accountant or use software to ensure they get it right. It is the employees’ responsibility to complete any requested paperwork, such as a W-4, at the time of hire to help make this process smoother for everyone.  

What employers take out of payroll taxes 

Employers must ensure that several different types of taxes are appropriately paid and deducted from the employee’s paycheck. 

Social Security and Medicare 

The Federal Insurance Contributions Act (FICA) includes Social Security and Medicare taxes. Social Security taxes are for those who are elderly, survivors and disabled. The hospital insurance tax is used for Medicare. Both taxes have different rates that the employee and employer are responsible for paying. Medicare has a 2022 rate of 2.9%. Of that, the employee pays 1.45%, and the employer pays 1.45%. The 2022 rate for Social Security is 12.4%. This means that the employer pays 6.2%, and the employee pays 6.2%. 

While these rates can change, the frequency is different for each one. The Social Security withholding rate has practically been the same since 1990. The Medicare rate can change every year. There is a wage base limit with Social Security taxes but none with the Medicare tax. In 2022, the base is $147,000. If you make over $200,000, the employer withholds an additional 0.9% once the employee begins making over $200,000 in the calendar year. The employer is not required to match this amount. 

Federal income tax

Federal income taxes are paid only by the employee, meaning this amount is withheld directly from your pay each pay period. The rates employees are expected to pay for federal income taxes vary based on their income bracket. There are seven tax brackets for 2022: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. For example, suppose you are single, making a taxable income of up to $10,275, or married filing jointly, making up to $20,550. In that case, your tax rate is 10%. The amount increases to 37% if you are single, making over $539,900, or married filing jointly, making over $647,850. 

State and local income tax

State and local income taxes vary from state to state. Some states have multiple tax brackets. Some states like California and New York have a tax bracket for high-income taxpayers referred to as the “millionaire tax.” State and local income taxes are solely on the employee; the employer does not cover these costs. On the other hand, nine states have no income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming. 

Federal and state unemployment

When it comes to unemployment taxes, employers may pay State Unemployment Tax Act and Federal Unemployment Tax Act taxes, also known as SUTA and FUTA. SUTA is required to be paid by the employer. This money is added to the state unemployment fund. All employers contribute to this, allowing their employees to collect from the funds if they need to apply for unemployment.

FUTA covers unemployment on a federal level. If unemployment is high, for example, during 2020, states can borrow from the FUTA fund to help with state unemployment needs. The FUTA and SUTA are based on employee wages. The current FUTA tax rate ranges from 0.6% to 6%. 

Calculating FICA taxes

Since FICA is split between you and your employer, the best way to calculate this tax is to add the total tax rate between the Medicare and Social Security deductions and divide it in half. The total of both taxes combined is 15.3%, which means half would be 7.65%. If you multiply your pay by 7.65%, this amount would be your contribution to FICA taxes. 

Make taxes easy 

Employers help make paying taxes easier by handling most of the employee’s taxes. While the employee is still responsible for some of their contributions to FICA and state and local income taxes, payments are taken directly from their paycheck. This process alleviates you from most of the administrative responsibility of paying those taxes. In addition, employers and employees work together by ensuring the proper paperwork is completed in the beginning so that everyone makes the correct contributions, making tax payments a little easier.

What is the percentage of federal income tax withheld?

Federal withholding tax rate varies based on income and filing status. Income tax rates range from 10% to 37% in 2022.

How much do employers pay for payroll taxes?

Employers pay half of the FICA taxes, so 7.65%.

How much are employment taxes?

Similar to employers paying half of the FICA taxes, employees do too. Employees pay 7.65% every pay period.

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