Payroll Tax Guide

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					Jeffrey L. Jackson, CPA LLC
515 Autumn Walk · Canton, GA 30114        ·   678-919-1250 · www.jjacksoncpa.com




Payroll Tax Guide
Payroll is one of the most challenging areas that an employer has to deal with and understand. Not only
must an employer ensure that its employees are paid properly, the employer must also ensure that all tax
withholdings, tax deposits and tax filings are appropriately handled.

This manual outlines each payroll tax and who is responsible for it. Failure to comply with payroll laws
will result in fines and penalties. Further, fines and penalties can be assessed against the employer and or
its officers. Consequences for failure to comply can lead to freezing of business and personal assets and/or
jail time for payroll fraud.

        Table 1-Payroll Tax Summary                    Employer                    Employee
                                                     Responsibility              Responsibility
        Social Security Tax                        6.2% of taxable pay         6.2% of taxable pay
        Medicare Tax                              1.45% of taxable pay        1.45% of taxable pay
        Federal Unemployment Tax (FUTA)           .8% of taxable pay up               NA
                                                       to $7,000
        State Unemployment Tax (SUTA)                Varies by State                   NA

        Federal Withholding                               NA               Based upon W-4 Elections
        State Withholding                                 NA               Based upon W/H Elections

While the employee is responsible his/her portion, it remains the employer’s responsibility to collect and
remit the appropriate amount of taxes.

                                Description of Tax Liabilities

Social Security Taxes
The total tax required for social security is 12.4% of taxable wages. For social security, taxable wages is
the first $106,800 of gross wages which are not reduced for 401(k) deferrals and pre-tax cafeteria plan
deductions. (See table below for future social security wage limits.) Social Security Tax is split between
the employer and the employee, each paying half (6.2%). When an employee’s check is calculated, the
amount of the check is reduced by 6.2% to pay the employee’s portion of the Social Security tax. The
employee’s money is held by the employer until it is time to make the tax deposit to the government. At
that time, the employer pays the other half of the tax, an additional 6.2% of taxable wages.

                                       Social Security Wage Limits
                                        2009             $106,800
                                        2010             $106,800

Medicare Taxes
The total tax required for medicare is 2.9% of taxable wages. For medicare, taxable wages is the gross
wages of the employee which are not reduced for 401(k) deferrals and pre-tax cafeteria plan deductions.
Medicare tax is split between the employer and the employee, each paying half (1.45%). When an
employee’s check is calculated, the amount of the check is reduced by 1.45% to pay the employee’s portion
of the Social Security tax. The employee’s money is held by the employer until it is time to make the tax
deposit to the government. At that time, the employer pays the other half of the tax, an additional 1.45% of
taxable wages.
Jeffrey L. Jackson, CPA LLC
515 Autumn Walk · Canton, GA 30114         ·   678-919-1250 · www.jjacksoncpa.com


Unemployment Taxes (Federal-FUTA and State-SUTA)
The Federal Unemployment Taxes (FUTA) and the State Unemployment Taxes (SUTA) provide for
payments of unemployment compensation to workers who have lost their jobs. The FUTA tax rate is
currently 6.2% of the first $7,000 of an employee’s taxable wages. For unemployment taxes, gross wages
are not reduced by 401(k) and cafeteria plan deductions. Employer’s who pay the state unemployment tax
on a timely basis will receive an offset credit of up to 5.4% regardless of the rate of tax they pay the state.
Therefore, the net FUTA tax is generally .8% (6.2%-5.4%).

The SUTA tax rate can vary each year. One key factor involved in determining an employer’s SUTA rate
is the number of unemployment claims against the employer. If employees file unemployment claims
against your company, your SUTA rate will increase.

The SUTA taxable wage base is different than the FUTA tax base. For Georgia, the first $8,500 of wages
is subject to SUTA. New employers are assigned a total tax rate of 2.7% until such time they are eligible
for a rate calculation based on their experience rating history.

Federal Withholding
The federal withholding amount deducted from an employee’s paycheck is calculated based upon his/her
“adjusted” wages and his/her Form W-4 elections. Adjusted wages are the Gross wages reduced by 401(k)
and pre-tax cafeteria plan deductions. Form W-4 elections may include: marital status, # of dependents,
and additional withholding $ amounts.

The employer will calculate the withholding amount and reduce the employee’s wages. The employer
holds this money on behalf of the employee until it is time to make the federal tax deposit. It is the
employer’s responsibility to deposit all of this tax to the federal government.

State Withholding
The state withholding amount deducted from an employee’s paycheck is calculated based upon his/her
“adjusted” wages and his/her state withholding form elections. Adjusted wages are the Gross wages
reduced by 401(k) and pre-tax cafeteria plan deductions. The state withholding form elections may
include: marital status, # of dependents, and additional withholding $ amounts.

The employer will calculate the withholding amount and reduce the employee’s wages. The employer
holds this money on behalf of the employee until it is time to make the state tax deposit. It is the
employer’s responsibility to deposit all of this tax to the state government.


                    Payroll Tax Deposits and Payroll Tax Returns
Payroll tax deposits and payroll tax returns have different due dates based upon the tax agency and dollar
amount of the tax liability. Table-2 on the following page provides a summary of the payroll tax deposit
and return due dates:
Jeffrey L. Jackson, CPA LLC
515 Autumn Walk · Canton, GA 30114     ·   678-919-1250 · www.jjacksoncpa.com

Table 2-Payroll Deposit and Return Due Dates
       Tax Type                  Add’l Info           Payment Due Dates          Return Due Dates
Employee withholding,    If the amount of taxes is    Quarterly depositor:           April 30
Social Security &        less than $2,500 per              April 30                   July 31
Medicare                 quarter, the payment can           July 31                 October 30
                         be made with the                 October 30                January 31
                         quarterly 941 return.            January 31

                          If the lookback period       Monthly depositor:            April 30
                          payroll taxes < $50,000,   15th of following month.         July 31
                          monthly depositor.                                        October 30
                                                                                    January 31
                          If the lookback period     Semi-weekly depositor:
                          payroll taxes > $50,000,    the following Friday or
                          semiweekly depositor.             Wednesday

Federal Unemployment      Due by the end of the             April 30                January 31
Tax (FUTA)                month following a                  July 31
                          quarter. Deposit                 October 31
                          required if FUTA                 January 31
                          amount for the quarter
                          exceeds $500.

State Withholding         Due dates vary by state.    Semi-weekly payer:         Last day of month
                          Information provided is    the following Friday or     following calendar
                          for Georgia.                     Wednesday                  quarter.

                                                       Monthly depositor:        Last day of month
                                                     15th day of the following   following calendar
                                                              month.                  quarter.

                                                      Quarterly depositor:       Last day of month
                                                       Last day of month         following calendar
                                                       following calendar             quarter.
                                                            quarter.

                                                         Annual Payer:              January 31
                                                          January 31

State Unemployment        Due dates vary by state.          April 30                 April 30
Tax (SUTA)                Information provided is            July 31                  July 31
                          for Georgia                      October 31               October 31
                                                           January 31               January 31


EMPLOYER NOTICE:
Employers should ensure that all tax filing and deposit deadlines are met. Federal
and state agencies treat payroll tax violations seriously. Failure to comply with the
payroll laws may constitute payroll fraud and is punishable by severe penalties.