The Federal Payroll Tax Requirements
The Internal Revenue Service has statutory authority to administer federal tax laws in the U.S. This includes enforcing and collecting federal payroll taxes. Employers are required to withhold federal income tax, Medicare tax and Social Security tax from employees' income. They are also required to pay federal unemployment, or FUTA, tax. A number of other regulations apply.
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Withholding Form
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The IRS requires employers to give new employees a W-4 form to complete. The W-4 is the employee's federal withholding tax form, which helps the employer to figure federal income tax withholding. Federal income tax withholding depends significantly on the employee's allowances and filing status, as indicated on his W-4. The IRS allows the employee to claim allowances, which gives him a certain sum that reduces his taxable income. If he neglects to submit a W-4 from, the employer withholds at the highest tax bracket of single with zero allowances.
Calculations
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The employer uses the employee's W-4 and IRS Circular E to determine federal income tax withholding. Specifically, it obtains the employee's filing status and allowances from her W-4, and uses the Circular E's withholding tax tables relevant to the employee's income, allowances, payroll period and filing status to calculate the withholding. It figures Medicare tax at 1.45 percent of all gross income; and Social Security tax at 6.2 percent of gross income, up to the yearly wage base of $106,800. Both the employer and the employee pay the same amount of Social Security and Medicare taxes. The employer calculates federal unemployment tax at 6.2 percent of the first $7,000 paid to every employee; the rate is .8 percent if state unemployment tax was paid on time.
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Payment/Reporting
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The employer pays all federal income tax, Medicare tax, and Social Security tax liabilities to the IRS, according to the schedule the IRS sets. Most employers make tax deposits on a semiweekly or monthly basis. The employer reports these taxes to the IRS, typically quarterly via Form 941. It pays federal unemployment tax by the final day of the first month following the quarter-end; it reports FUTA tax annually via Form 941. The employer also reports each employee's annual wages and taxes withheld to the Social Security Administration on Form W-2; it gives the employee a copy of the W-2 to file his tax return. The employer can obtain withholding guidelines and its payment and reporting schedule from the Circular E.
Considerations
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An employee can claim exemption from federal income tax withholding on her W-4 if she meets the exemption requirements stated on the form. In general, to qualify for exemption, the employee must have been entitled to a refund of all federal income tax withheld because she owed no taxes in the prior year, and must expect a refund in the current year because she anticipates owing no taxes.
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References
- Photo Credit tax forms image by Chad McDermott from Fotolia.com
