Who Pays Payroll Tax?
Payroll taxes are the common name for any withholdings that a company takes out of an employee's paycheck and gives to the government. Often times, companies must pay a reciprocal amount that they have withheld in addition to other taxes that also go to the government.
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U.S Federal Payroll Tax
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When hiring for employment, an employer requires their employees to fill out a W-4 form, which helps establish the amount of money the employer will withhold in every employees paycheck. The company is required to take out federal income taxes and half of employees Social Security and Medicare taxes as well. The employer then matches the Social Security and Medicare tax contribution. All of these taxes together are known as the Federal Insurance Contributions Act tax.
Other Payroll Taxes
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Also, in some states, employers are required to collect state, county or city income taxes and send it to the appropriate government. The company must also pay state and federal unemployment tax. Some Limited Liability Companies with less than a certain amount of employees (varies by state) are exempt from paying unemployment taxes.
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Exemptions
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Employees who are treated as independent contractors are exempt from having payroll taxes collected out of their paychecks. In addition, single-member LLC's do not have to pay payroll taxes either, as the owner is also the only employee.
Penalties
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Sometimes companies do not properly pay their payroll taxes and they are assessed a Trust Fund Recovery Penalty by the Internal Revenue Service. The amount of taxes owed plus interest is collected on the unpaid debts. Employees whose payroll tax was not taken out properly as part of their job can also be assessed a penalty. An interview with an IRS agent will accompany an investigation into missing payroll taxes.
Maximum taxes collected
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In 2009, employees must pay 6.2 percent of their income up to the first $106,800 to Social Security taxes. The employer matches this contribution. That same year, employers withheld 1.45 percent of an employee's wages for Medicare taxes and matched that contribution as well.
As for the unemployment tax rates, each state sets their own rates, which are based on certain amounts per employees.
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