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Tax FAQ:

Payroll & Employment Taxes

Learn about Payroll & Employment Taxes, including employee taxes, employer taxes, unemployment taxes, and wage reporting.

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Payroll & Employment Taxes

Employee taxes are taxes that may be withheld from an employee’s wages or otherwise apply to compensation received for employment.

Common payroll withholdings can include federal income tax, Social Security tax, and Medicare tax. State and local taxes may also apply depending on where the employee works and lives.

Employers are generally responsible for calculating and withholding required federal payroll taxes from employee wages.

Federal income tax withholding is generally based on the employee’s Form W-4 information, wages, payroll frequency, and applicable IRS withholding tables.

Generally, yes. Employees typically have Social Security and Medicare taxes withheld from covered wages.

Employee payroll taxes are generally withheld from an employee’s wages, while employer payroll taxes are paid by the employer in addition to the employee’s wages.

Yes. Employees can generally submit an updated Form W-4 to their employer when their withholding circumstances change.

Excess federal income tax withholding may generally be reflected as a credit on the employee’s federal income tax return and can result in a refund if the taxpayer has overpaid.

The employee may owe additional tax when filing the federal income tax return and could potentially face an estimated tax underpayment penalty depending on the circumstances.

Employees can review their pay statements and year-end Form W-2 to verify wages and taxes withheld.

Employer taxes are taxes that businesses may be required to pay or withhold in connection with employing workers.

Employers generally have responsibilities involving Social Security and Medicare taxes, federal unemployment tax, and federal income tax withholding from employee wages.

Generally, employers must pay a matching share of Social Security and Medicare taxes for covered employees.

The Federal Unemployment Tax Act establishes a federal unemployment tax that generally applies to covered employers.

Employer payroll taxes that are ordinary and necessary business expenses may generally be deductible, subject to applicable tax rules.

Deposit schedules depend on the employer’s payroll tax liability and IRS requirements. Some employers deposit taxes monthly, while others may have a more frequent schedule.

The employer may face penalties, interest, and collection actions for failing to properly deposit required employment taxes.

Employers may use forms such as Form 941 and Form 940, along with wage and information returns such as Forms W-2 and W-3.

In certain circumstances, responsible individuals can be held personally liable for specific unpaid employment taxes.

Professional payroll assistance can help employers calculate withholding, make deposits, file required forms, and maintain payroll records accurately.

Employment taxes are federal taxes associated with wages and employment, including federal income tax withholding, Social Security tax, Medicare tax, and federal unemployment tax.

Some employment taxes are withheld from employee wages, while others are paid directly by the employer.

Federal income tax withholding is the amount an employer deducts from an employee’s wages and sends to the IRS toward the employee’s federal income tax liability.

Social Security and Medicare taxes are federal payroll taxes imposed on covered wages under the Federal Insurance Contributions Act.

Federal unemployment tax is an employer tax generally used to help fund the federal-state unemployment insurance system.

Employers generally report employment taxes through periodic federal payroll tax returns and annual wage and information returns.

Yes. Employers can generally use IRS correction procedures when payroll tax returns or wage statements contain errors.

The employer can potentially become liable for the taxes that should have been withheld, along with applicable penalties and interest.

Employers should retain employment tax records for the period required by applicable federal tax rules and other employment laws.

Proper employment tax compliance helps employers meet federal reporting and payment obligations and helps employees receive accurate wage and withholding information.

FICA stands for the Federal Insurance Contributions Act, which imposes Social Security and Medicare taxes on covered wages.

Both employees and employers generally pay their respective shares of FICA taxes on covered wages.

FICA includes Social Security tax and Medicare tax.

For employees, employers generally withhold the employee’s share from wages and pay the employer’s share separately.

Yes. Social Security tax generally applies only up to an annual wage base that is adjusted periodically.

Generally, there is no wage base limit for the regular Medicare tax.

The Additional Medicare Tax is an additional Medicare tax that applies to wages above applicable statutory thresholds.

In certain circumstances, an employee may be entitled to recover an overpayment of FICA taxes, depending on why the excess tax was withheld.

Self-employed individuals generally pay self-employment tax, which covers Social Security and Medicare taxes through a different tax mechanism.

Employees can review their pay statements and Form W-2 to verify Social Security and Medicare wages and taxes withheld.

FUTA stands for the Federal Unemployment Tax Act, which generally imposes a federal unemployment tax on employers.

FUTA is generally an employer tax and is not normally withheld from employees’ wages.

FUTA helps fund the federal unemployment insurance system and related administrative costs.

Employers generally report federal unemployment tax using Form 940.

Yes. FUTA generally applies to a specified amount of each employee’s wages during the year.

Eligible employers may generally receive a credit for certain state unemployment taxes paid, subject to applicable federal requirements.

Deposit requirements depend on the employer’s FUTA liability and applicable federal deposit rules.

Late payment or failure to deposit FUTA tax can result in penalties and interest.

No. FUTA applies to employers that meet applicable federal requirements, and certain employers and payments may be exempt.

An employer must review its employee wages, payroll history, applicable exemptions, state unemployment tax payments, and federal FUTA requirements.

Medicare tax is a federal payroll tax used to help fund the Medicare program.

Employees generally pay Medicare tax through payroll withholding, and employers generally pay a matching Medicare tax on covered wages.

There is generally no wage base limit for the regular Medicare tax.

The Additional Medicare Tax is an additional 0.9% tax that applies to wages, compensation, and self-employment income above applicable statutory thresholds.

Employers generally begin withholding Additional Medicare Tax from an employee’s wages after wages exceed the applicable statutory threshold during the calendar year.

Yes. Employer withholding is based on wages paid by that employer, while the final Additional Medicare Tax liability is determined using the taxpayer’s overall circumstances and applicable thresholds.

Certain Medicare tax overpayments may be recoverable when the applicable requirements for a refund are met.

Yes. Self-employed individuals generally pay the Medicare portion of self-employment tax on applicable net earnings.

No. Medicare tax generally applies to wages and certain self-employment income rather than every type of income.

Employees can review their pay statements and Form W-2 to see Medicare wages and Medicare tax withheld during the year.

Payroll taxes are federal, state, and sometimes local taxes associated with employee compensation and payroll.

Federal payroll taxes commonly include federal income tax withholding, Social Security tax, Medicare tax, and federal unemployment tax.

Some payroll taxes are withheld from employees, while others are paid by employers.

Employers generally use employee wage information, Form W-4 data, IRS withholding tables, and applicable payroll tax rates to calculate required amounts.

Payroll tax deposit schedules depend on the employer’s applicable deposit schedule and tax liability.

Unpaid payroll taxes can result in penalties, interest, IRS collection activity, and potentially personal liability for responsible individuals in certain circumstances.

Potentially. Certain payroll tax penalties may qualify for relief when the taxpayer establishes a valid basis under applicable IRS rules.

Depending on their circumstances, employers may need to file Forms 941, 940, W-2, W-3, and other applicable employment tax forms.

Employers should maintain accurate payroll records, calculate withholding correctly, make deposits on time, file required returns, and promptly correct identified errors.

A payroll service can help with calculations, deposits, reporting, and recordkeeping, but the employer generally remains responsible for meeting its tax obligations.

Social Security tax is a federal payroll tax that helps fund Social Security benefits.

Employees and employers generally each pay a portion of Social Security tax on covered wages.

Yes. Social Security tax generally applies only up to an annual wage base established by federal law.

Yes. Each employer generally withholds Social Security tax independently. If the combined withholding exceeds the applicable annual maximum, the excess may generally be claimed as a credit on the taxpayer’s federal income tax return.

No. Both are FICA taxes, but they are separate taxes with different rules and wage limits.

Yes. Self-employed individuals generally pay the Social Security portion of self-employment tax on applicable net earnings.

An employee may be entitled to recover certain excess Social Security tax withholding when the applicable refund requirements are satisfied.

Employees can generally find Social Security wages and Social Security tax withheld on their Form W-2.

No. Social Security tax generally applies to covered wages and self-employment income rather than all forms of income.

Social Security tax is withheld from covered wages to fund the Social Security program and provide workers with credits toward potential future benefits.

Unemployment taxes are taxes used to help fund unemployment insurance programs at the federal and state levels.

Federal unemployment tax is generally paid by employers rather than withheld from employees.

FUTA is the federal unemployment tax, while state unemployment taxes are imposed under individual state unemployment insurance systems.

Federal unemployment tax is generally an employer responsibility and is not normally withheld from employee wages.

Employers generally report federal unemployment tax using Form 940.

Not necessarily. Employers must determine whether their workers and payments meet federal and state unemployment tax requirements.

Yes. Federal unemployment tax generally applies to a specified amount of wages per employee, while state wage bases can differ.

Eligible employers may generally receive a credit against FUTA tax for qualifying state unemployment taxes paid.

The employer may face penalties, interest, collection activity, and other consequences for failing to meet applicable unemployment tax obligations.

Accurate records help employers calculate federal and state unemployment tax obligations and claim applicable credits correctly.

Wage reporting is the process of reporting employee compensation and applicable tax withholding to the IRS, Social Security Administration, and employees.

Employers generally use Form W-2 to report employee wages and certain taxes withheld.

Form W-3 is generally used to transmit certain Forms W-2 to the Social Security Administration.

Employers generally must furnish Form W-2 by the applicable annual deadline established by federal law.

Form W-2 generally reports wages, tips, federal income tax withheld, Social Security wages and tax, Medicare wages and tax, and certain other compensation information.

The employer may need to issue a corrected wage statement and make corresponding corrections to applicable payroll tax reporting.

Yes. Incorrect wage information can affect taxable income, withholding credits, Social Security records, and the taxpayer’s federal tax return.

The employee should generally contact the employer and request a corrected Form W-2. If the issue cannot be resolved, the employee may need to follow IRS procedures for reporting the discrepancy.

Electronic filing requirements depend on the number and type of returns filed and the applicable IRS and Social Security Administration rules.

Employers should retain wage and payroll records for the period required by applicable federal tax and employment laws.

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