Federal Income Tax and Social Security and Medicare Taxes
You generally must withhold federal income tax from your employees'
wages. You withhold part of Social Security and Medicare taxes from your
employees' wages and you pay a matching amount yourself. To figure how
much to withhold from each wage payment, use the employee's Form W-4 and
the methods described in
Publication 15, Employer's Tax Guide and
Publication 15-A, Employer's Supplemental Tax Guide (PDF).
The Internal Revenue Service recently released instructions to help employers implement the
2011 and 2012 cut in payroll taxes, along with new income-tax withholding tables that employers will use during 2011 and 2012.
Employers should start using the new withholding tables and reducing
the amount of Social Security tax withheld as soon as possible in 2011,
but not later than Jan. 31, 2011.
Notice 1036
(PDF) contains the percentage method income tax withholding tables, the
lower Social Security withholding rate, and related information that
most employers need to implement these changes.
Publication 15, (Circular E), Employers Tax Guide (PDF), contains the percentage method tables and the wage bracket tables that some employers use.
Federal Unemployment (FUTA) Tax
You report and pay FUTA tax separately from Federal Income tax, and
Social Security and Medicare taxes. You pay FUTA tax only from your own
funds.
Employees do not pay this tax or have it withheld from their pay. Refer to
Publication 15, Employer's Tax Guide and
Publication 15-A, Employer's Supplemental Tax Guide (PDF) for more information on FUTA tax.
Employers in some states may owe more tax under the Federal Unemployment Tax Act (FUTA) than they expect if they operate in a
credit reduction state.
Employers in credit reduction states must increase the FUTA tax rate on
wages subject to taxes under that state’s Unemployment Insurance (UI)
program when they prepare their Form 940, Employer’s Annual Federal
Unemployment (FUTA) Tax Return.
Self-Employment Tax
Self-employment tax
(SE tax) is a social security and Medicare tax primarily for
individuals who work for themselves. It is similar to the social
security and Medicare taxes withheld from the pay of most wage earners.
Depositing Employment Taxes
Beginning January 1, 2011, taxpayers must deposit all depository
taxes (such as employment tax, excise tax, and corporate income tax)
electronically using the Electronic Federal Tax Payment System (
EFTPS). Forms 8109 and 8109-B, Federal Tax Deposit Coupon, cannot be used after December 31, 2010. See
Treasury Decision 9507 for more information.
Reporting Employment Taxes
If you have been filing Forms 941 and believe your
employment taxes for the calendar year will be $1,000 or less, and you
would like to file Form 944 instead of Forms 941, you must contact the
IRS to request to file Form 944 rather than Form 941. You must receive
written notice from the IRS to file Form 944 instead of Forms 941 before
you may file this form. Refer to
Certain Taxpayers May File Their Employment Taxes Annually for more information.
Conversely, if you received notice from the IRS and have
been filing Form 944 but would like to file Forms 941 instead, you must
contact the IRS to request to file Forms 941. You must receive written
notice from the IRS to file Forms 941 instead of Form 944 before you may
file these forms. Refer to
Certain Taxpayers May File Their Employment Taxes Annually for more information.
e-file for Business and Self-Employed Taxpayers
Whether you're a business, big or small, or are self-employed you'll find an
e-file
for business filing option that meets your needs. Use IRS e-file for
Employment Tax Returns, Information Returns, Partnerships, Corporations,
Estates & Trusts, plus Exempt Organizations.
Preparing and Filing Form W-2
At the end of the year, the employer must complete
Form W-2, Wage and Tax Statement
(PDF) to report wages, tips and other compensation paid to an
employee. A copy of this form must be given to the employee by January
31st after the end of the year. You must also send a copy of the W-2 to
the Social Security Administration (SSA). Employers can prepare and file
up to 20 W-2s at a time at the Social Security Administration’s Web
site. Using
SSA’s online W-2 filing, employers can also print out all the necessary copies of the W-2 for their employees, state taxing agencies, etc.
Correcting/Adjusting Employment Taxes
If correcting employment tax errors on previously filed employment tax returns is required, refer to
Correcting Employment Taxes.
Voluntary Classification Settlement Program
The
Voluntary Classification Settlement Program (VCSP)
is a new optional program that provides taxpayers with an opportunity
to reclassify their workers as employees for future tax periods for
employment tax purposes with partial relief from federal employment
taxes for eligible taxpayers that agree to prospectively treat their
workers (or a class or group of workers) as employees. To participate in
this new voluntary program, the taxpayer must meet certain eligibility
requirements, apply to participate in the VCSP by filing Form 8952,
Application for Voluntary Classification Settlement Program, and enter
into a closing agreement with the IRS.
Outsourcing Payroll Duties
If you outsource your payroll, refer to
Outsourcing Payroll and Third Party Payers.
Independent Contractor (Self-Employed) or Employee?
Which workers are considered employees? Before you can know how to
treat payments you make for services, you must first know the business
relationship that exists between you and the person performing the
services. Refer to
Independent Contractor (Self-Employed) or Employee? for more information.
Combined Annual Wage Reporting (CAWR)
Combined Annual Wage Reporting (CAWR) is a Document Matching Program
that compares the Employee Wage Information reported by the employer to
the Internal Revenue Service (IRS) and the Social Security
Administration (SSA). If the amounts reported to the IRS do not match
those from SSA, you may receive a notice asking for the reason for the
discrepancy. If you do not respond timely, IRS may compute the
additional taxes and/or penalties due and send you a bill. If you
receive a notice CP253 or Letter 99C regarding missing Form(s) W-2,
refer to
Combined Annual Wage Reporting Missing Form W-2 Inquiries. If you receive a notice CP251 or Letter 99C regarding underreported employment taxes refer to
Combined Annual Wage Reporting Employment Tax Problem Inquiries.
Additional Medicare Tax
Beginning January 1, 2013, the Additional Medicare Tax applies to an
individual’s Medicare wages, Railroad Retirement Tax Act compensation,
and self-employment income that exceeds a threshold amount based on the
taxpayer’s filing status.
Employers are responsible for withholding the 0.9% Additional
Medicare Tax on an individual’s wages and compensation paid in excess of
$200,000 in a calendar year. An employer is required to begin
withholding Additional Medicare Tax in the pay period in which it pays
wages and compensation in excess of $200,000 to an employee.
There is no employer match for the Additional Medicare Tax.
For more information
click here
