Withhold Taxes from Employee Pay and Calculate Employer's Taxes


When the F/EA pays consumers' employees, certain taxes are withheld from each employee's paycheck.

For those employees who are not FICA exempt (see Collecting, Recording and Processing Information for Family Employer and Employee Tax Exemptions), Social Security and Medicare taxes are withheld from employee pay up to the Social Security Contribution and Benefit Base.  Social Security Tax is withheld from employee gross wages at a rate of 6.2%.  Medicare Tax is withheld from employee gross wages at a rate of 1.45%.  The combination of Social Security Tax and Medicare Tax is called "FICA", so the total FICA amount withheld from an employee's paycheck is 7.65%.

The employer also owes FICA taxes on employee wages.  For Social Security and Medicare taxable wages paid to an employee,, the employee's employer owes 7.65% of the wages.  The employer and the employee share of FICA are both deposited to the IRS by the employer (see IRS Form 941: Employer's Quarterly Federal Tax Return and Payments).

Federal Income Tax should be withheld from employee pay.  The amount withheld will depend on what the employee has recorded on their IRS Form W-4 and what the employee's tax rate is, based on their income bracket (see page 39 of Publication 15, Circular E).

In most states, State Income Tax must be withheld from employee pay.  The rate of state income tax withheld depends on state requirements.

State Unemployment Tax is required in all states and usually paid in whole by the employer.  State Unemployment Tax exemption and liability rules usually mirror FUTA rules, but this varies by state.  In some states, employees may be responsible for a portion of State Unemployment Tax or disability insurance tax.  In those states, the employee tax should be withheld from employee pay per state rules.

For those employees who are not exempt from Federal Unemployment Tax (FUTA) (see Collecting, Recording and Processing Information for Family Employer and Employee Tax Exemptions) AND whose employers are liable for FUTA tax*, the employer FUTA tax must be calculated and eventually paid on gross wages paid to an employee up to the FUTA Taxable Wage base.  If State Unemployment Tax is paid timely and in full by the employer, then the FUTA tax owed is .6% of FUTA taxable wages, except if a FUTA credit reduction is in effect in F/EA's state of operations for that calendar year.  If State Unemployment Tax is NOT paid timely or in full, then the FUTA tax rate is 6% of FUTA taxable wages.

The F/EA ensures that all employee taxes are appropriately withheld and that all employer taxes are appropriately calculated so that all taxes can also be correctly paid and filed.

*Employers are liable for FUTA tax if they have paid $1000 or more in gross wages in a single calendar quarter.  It doesn't matter how many employees the employer pays; all that matters is if the employer has ever paid $1000 of wages out in a single quarter. If they have, that employer is liable for FUTA on wages paid to his/her employees.

  1. The F/EA's payroll system is programmed with the most current tax withholding tables to ensure that taxes are correctly withheld and calculated for every employee paycheck processed.
  2. <<Insert information on how and when tax tables in payroll system are updated.>>
  3. <<Insert information on how individual employer tax rate information (e.g. for State Unemployment Tax) is stored in the payroll system for each employer and how that calculates the taxes owed.
Internal Controls: 
  1. <<Insert how tax tables are kept up to date>>
  2. <<Insert how payroll system is periodically tested to ensure that tax calculations are operating correctly.>>
  3. <<Insert any other information on how paycheck withholings are quality checked or any other information on payroll system controls.>>