For employment taxes for payroll, the employer taxes include Medicare, just like the employees pay F.U.T.A, which is federal unemployment, which is state unemployment, and then workers compensation, also called workers comp. All of these different names I’m about to explain literally just mean Workers comp.
The employer payroll taxes include Social Security, Medicare, the employer will match the employee contribution. So if an employee puts in 80 bucks into Medicare the employer also has to pay 80 bucks into same with Medicare.
The employer pays 6.2 percent of the employees, taxable gross wages, and with Medicare, both the employer and the employee pay one point: four: five percent of employee gross wages. If you are self-employed, that means you are both the employer and the employee.
So for self-employed will pay double 6.2 percent, in other words, 12.4 % and same thing with Medicare. The employer also pays unemployment taxes. These taxes help provide unemployed workers with unemployment benefits.
So let’s talk about unemployment. First, we have Futa taxes. Futa stands for a federal unemployment tax Act, so this is an act, a law that requires employers to pay into the program.
It does not pay the benefits. So when an employer pays a futa tax that money’s used just to run the unemployment plan, it is not used, or those contributions are not used to pay
the benefits of the workers. Next is Suta taxes. Suta stands for the state unemployment tax Act, so this is a law that requires employers to pay into the state unemployment tax plan.
Now this tax, which is much higher than futa, goes to pay the unemployment benefits.
So if a worker is unemployed and let’s say they get five hundred bucks a week for unemployment benefits, but the five hundred dollars comes from the plan, so the taxes go to pay the unemployment benefits To the people who are unemployed and the futa taxes go to pay for running the unemployment Department, now payroll software such as quicken often refers to futa as SUI which stands for state unemployment insurance.
So if you see futa it means the same as Sui.
So what is the actual tax for in the futa? This is a little bit complicated at first, so the futa tax is 6.2 percent on wages earned by each employee up to the wage base limit, but this wage base is only $ 7,000 This is an employer tax not an employee tax, but it is based on how much each employee pays.
So if an employee makes $ 40,000 a year, the employer only has to pay futa taxes on the first $ 7,000 of each calendar year for that employee. Now there is a credit, and it is a huge credit that employers will get if they pay their state unemployment, in other words, futa.
So if an employer pays their pseudo taxes on time, then they get a credit of five points. Four percent on the futa tax: this is a huge incentive to make sure that you pay your SUI taxes on time so because most employers pay their SUI on time.
That means they’re, going to get the 5.4 percent credit, so the net futa tax is 0.8 percent with that or how we calculated. That is, you take the 6.2 percent. You subtract the credit of 5.4 percent for paying futa/sui on timet
8 %. It’s not a very big tax at all, and remember, it’s also only taxed on the first seven thousand dollars of each employee’s gross pay per year. Now, how about pseudo-taxes, now each state is going to determine the wage base limit.
A company with a history of laying off a lot of employees will pay a higher SUI of the tax rate. Then a company that does not lay off many people. Why? The company, who’s, laying off a lot of people, their employees, are using more unemployment benefits.
Therefore, their percentage that they have to pay into the program is going to be higher. Another payroll tax that employers have to pay is called workers comp workers compensation is almost never called workers compensation.
Everyone calls it workers-comp as it’s much easier to say. What this does is insures employees who are injured or killed while on the job have protection. So if you’re operating a forklift and you fall off and hurt your head as long as you were doing it on the job, then workers compensation insurance might cover that now in most states.