Types of Payroll Taxes and Employer Responsibility

It is often said that there is always one thing which we can be certain of and that is taxes. The word alone conjures up negative connotations, and as a small business owner taxes can be even more daunting because you are faced with both personal and business taxes. This article will cover the different payroll taxes you are faced with, how you have to pay for them (i.e. your responsibility to the government as an employer), and offer a solution to help managing these taxes through the use of an HR Information System.

When discussing payroll taxes, FICA must be brought up. FICA stands for the Federal Insurance Contributions Act and refers to two major taxes that employers have to worry about, Social Security and Medicare taxes. Even if an employee is not taking advantage of both (or either) of these government-provided services, they are still required to pay the taxes. And not only do employers have to pay such taxes but they also have to withhold and pay their employees’ share of the taxes. In fact, the responsibility to cover these taxes lies in the hands of the employer. What complicates this is that, although there is no wage limit for the Medicare tax, meaning that no matter what an employee’s salary is they will be taxed on their wages; there is a wage limit for the Social Security portion of the FICA taxes. Once an employee reaches the "wage base limit" for the Social Security tax, the employer does not have to pay taxes on any wages above that limit. While the actual Social Security tax rate may remain constant from year to year, the wage base limits can and often do change on a yearly basis. Because of this, a third-party organization is often suggested for HR payroll duties such as ADP or Ceridian. While it is ultimately the employer’s responsibility for making sure they pay payroll taxes, organizations such as these provide information that is up-to-date on the latest tax laws and regulations, alleviating the burden on you, the small business owner, so you can focus more on your company and less on your taxes. These groups understand the differences that each company faces based on their size and even location. For example, certain states (including Alaska, Florida, and Texas, among others) do not have state income taxes. Companies who span several states can rely on their HR Management Software to make sure they pay the right taxes.

There are several different types of payroll taxes including the already-mentioned FICA taxes, which pay for Social Security and Medicare benefits, and state income taxes, which cover state-run programs. For example, your company’s taxes may provide for the elderly or help keep state parks up and running. And you will also be providing income for the government through federal income taxes, which help support the government’s expenditures, such as the military and space programs. Employers are responsible for withholding FICA and federal income taxes from their employees, but depending on the state (or local community) in which the company resides, the employer may also be responsible for a state income tax or another payroll tax referred to as the municipal income tax (a tax imposed by a city to help it maintain its programs). For a small business owner all of this can be overwhelming, especially if you’re a new company – you will want to focus your energy on starting up and maintaining your company. Again one of many ways to make sure you become a seasoned pro is to work with an outsourced HR Payroll provider or in-house HRMS. These companies are great for outsourcing HR work, and can help you, as a small business owner, navigate the sometimes confusing, sometimes frustrating, and sometimes overwhelming world of taxes. There are lots of different payroll taxes that you, as a small business owner, will be responsible for but there is also lots of help out there. [There are even different tools to match you with human resource software that is right for your company.]