Employer payroll taxes include taxes primarily related to employee benefits and unemployment funds. The liability and withholding obligations for these taxes are as follows:
- The total amount of payroll taxes collected by the employer from employees, as well as those recorded as an expense by the employer. The employer is responsible for remitting both types of payroll taxes to the applicable governments.
- The amount of payroll taxes recorded as an expense by the employer, which must be remitted to the applicable governments.
The types of payroll taxes that can be considered employer payroll taxes include the following:
- Social security. A social security tax is applied to employee wages, which the employer matches. Thus, the employer withholds the employee portion of social security from employee wages, and remits both that amount and its own matching amount to the government. There is a cap on the maximum amount of employee income that is subject to the social security tax.
- Medicare. A Medicare tax is applied to employee wages, which the employer matches. Thus, the employer withholds the employee portion of Medicare from employee wages, and remits both that amount and its own matching amount to the government. There is no cap on the maximum amount of employee income that is subject to the Medicare tax.
- Federal and state unemployment. The employer is responsible for paying federal and state unemployment taxes. The federal portion is usually quite small, but the state unemployment tax can be much larger, depending upon the company's past history with laying off employees. The tax calculation usually pushes most of this expense into the first quarter of the calendar year. Depending on the circumstances, a nonprofit entity does not pay the federal unemployment tax, but instead pays state-level unemployment taxes.
- Head tax. Some city and other local governments charge a fixed head tax per employee per year, which the employer pays.
The preceding list addresses those government remittances that can most clearly be identified as payroll taxes. In addition, the federal and state governments may require income tax deductions from employee wages, which the employer is responsible for remitting to the applicable governments. This is not a tax on the employer, but rather a tax on employees.
Employer payroll taxes are usually remitted to the government within a few days of withholding. If a company outsources its payroll processing, the payroll provider will deduct these funds from the company's bank account and remit them on behalf of the company.