Employment taxes are paid to the IRS directly from the employer. These are federal income tax, Social Security and Medicare taxes, and Federal Unemployment Tax Act (FUTA) taxes. Payroll taxes are Social Security and Medicare contributions, but these are defined as payroll taxes only on IRS Form 941, a form employers use to file quarterly returns.
Employment Tax Basics
The IRS uses the term employment taxes to refer to a list of taxes that relate to employees, including IRS federal income taxes withheld from employee pay and paid to the IRS on the employee’s behalf. These include:
Federal income taxFederal Insurance Contribution Act (FICA) taxesFederal Unemployment Tax Act (FUTA) taxesAdditional Medicare Tax
FICA taxes are the federal survivors, old age, and disability insurance (Social Security) taxes; and hospital insurance tax, known as Medicare. These taxes are also withheld from employee pay and paid to the IRS.
FICA Taxes
The Social Security withholding is 12.4%, paid as 6.2% withheld from the employee, and 6.2% paid by the employer. Medicare is 2.9%, with 1.45% paid by both the employee and employer.
FUTA Taxes
Employers pay FUTA taxes based on the number of employees they have and unemployment rates. These taxes are not deducted from employee pay; only an employer pays them.
Additional Medicare Tax
The Additional Medicare Tax is an employment tax imposed on some higher-earning employees. This is in addition to the usual Medicare contributions. Employers must withhold the Additional Medicare Tax on wages paid over $200,000 for individuals. Employees may need to file estimated tax payments to cover the full amount if the tax withheld by the employer is not sufficient. If the employee pays the full amount of the Additional Medicare tax, employers can file forms 4669 and 4670.
Payroll Tax Basics
Payroll taxes are a subset of employment taxes but the definition can change depending on who you ask. That being said, payroll taxes are typically considered the Social Security and Medicare taxes withheld from your pay and matched by your employer.
Employer Tax Obligations
Employment taxes encompass all taxes employers must pay if they have employees, and payroll taxes are those taxes related to Form 941. The IRS addresses withholding for both FICA (Federal Income Contributions Act) taxes and federal income tax in this form. Employers must:
Withhold federal income taxes from employee payWithhold FICA taxes from employee pay and pay those taxes, plus an equal amount from your businessWithhold any state income taxes from employee payWithhold the Additional Medicare Tax for employee’s earnings over a required thresholdPay federal and state unemployment taxes, based on the number of employees you havePay workers’ compensation fees to state or federal agenciesFile Form 941 quarterly
Workers’ compensation fees are paid to state or federal agencies and can vary depending on several factors.
When To Deposit Employment Taxes
Generally speaking, employers must place withholding on deposit. The rules for depositing can vary depending on the nature of your business and how much you withhold. Employers must deposit:
Any federal income tax withheldThe employer and employee portion of Social Security taxesThe employer and employee portion of Medicare taxes
Traditional employers must deposit either monthly or semi-weekly; the schedule you will need to use depends on the type of business you have. Most employers will file Forms 941, 944, or 945 and can determine their deposit schedule using Publication 15. Employers with agricultural employees file Form 943 and will need to use Publication 51 to determine their schedule. Monthly deposits are due by the 15th of the following month, and semi-weekly deposits are due by the Wednesday following a Wednesday, Thursday, or Friday payment. If you paid your employees on Saturday, Sunday, Monday, or Tuesday, deposits must be made by the following Friday. The regularity of state and local deposits can depend on the laws where you are reporting.
