Employer's Share of Payroll Taxes

Payroll taxes are sums of money paid by an employer on behalf of an employee or withheld from a worker's paycheck in order to pay for estimated taxes and social programs. Voluntary deductions, such as retirement benefits and health plans, are not considered payroll taxes. In the United States, employers usually cover a large share of payments into social programs.

Taxes

The Internal Revenue Service requires employers to withhold estimated federal, state and local income taxes from an employee's income based upon the employee filling out IRS Form W-4. The employer remits these tax monies to the owed entities but does not cover these taxes out of his own pocket.

Unemployment Insurance

Employers cover 100 percent of unemployment insurance at the federal level. Employers must pay 6.2 percent of a worker's gross income in federal unemployment insurance taxes, although the federal government offers a tax credit of up to 5.4 percent to offset these payments. According to the United States Department of Labor, the federal unemployment insurance tax usually costs an employer $56 per employee annually as of February 2011. The states can offer extended unemployment benefits that are covered jointly by the federal government and the states. States sometimes require the employer and employee to pay an equal share of payroll tax into the state unemployment pool.

Social Security

The Social Security program provides social insurance payments to the elderly, disabled and widowed spouses. Employers and employees each cover half of this payroll tax. As of February 2011, employers pay a 6.2 percent tax on an employee's wages or salary. Companies do not have to pay for Social Security tax on workers earnings over $106,800 with a maximum annual contribution per worker of $6,621.60.

Medicare

The Medicare program provides no- or low-cost health coverage to those 65 or older, the disabled and those with serious medical conditions. The Federal Insurance Contributions Act requires employers to pay 1.45 percent of an employee's wages or salary into this fund with the employee paying an additional 1.45 percent out of his own pocket. Employers will pay the Medicare tax on 100 percent of earnings with no maximum limit.

Disability

Some states levy a payroll tax to fund the temporary disability of workers. As of March 2011, Rhode Island charges employers a 1.3 percent tax on a worker's earnings up to a maximum of $759.2 in tax paid per worker. California charges a 1.2 percent tax rate for the State Disability Insurance program up to $1,119.79 annually that comes completely out of a worker's paycheck. Other states split the payments into a disability fund evenly between the worker and the employer.

References

• State of Rhode Island Divison of Taxation: Important Notice to Rhode Island Employees
• State of California Employment Development Department: SDI Contribution Rates
• U.S, Department of Labor: Unemployment Insurance Tax Topic
• Social Security Administration: 2011 Social Security Tax Rate and Maximum Taxable Earnings