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When you see the word “employee,” as an HR professional it may be hard to remember, yes, you’re one of those too. That means you need to understand what employee payroll taxes are for you as an employee, but also be able to explain it to your employees effectively.

What Are Employee Payroll Taxes?

Taxes are an inevitable part of payroll, and employees are no exception to these requirements. Your employees will pay federal, state, and local taxes in accordance with the requirements of the Internal Revenue Service (IRS) and their specific state. Of course, the employer has no control over tax rates, and that information should be clearly communicated to your employees. Employees’ tax brackets are based on the gross wages and the filing status they claim on their W-4, which is usually completed in their new hire paperwork on their first day. Should they have any issues with the amounts being deducted from their pay, they should consult a tax professional for advice and evaluate their current W-4 for adjustments.

What Is Employee Taxable Income?

Taxable income is the amount of money you earned performing your job. It is the amount that determines how much tax you owe to each tax agency.
It’s important to note that employer benefits are usually pre-tax, which is an added bonus to employees. So, that amount is taken out before the employee’s taxable income is established, lowering their taxable income overall. For example, if your company contributes to a 401(k) account and your employees elect to also contribute, their contribution would come out of their gross earnings, and what’s left is their taxable income.   Remember to show employees that when you’re talking about how great your company benefits are.

The Difference Between Employee Payroll Taxes and Employer Payroll Taxes

Both employers and employees pay payroll taxes. The most important takeaway is the way it affects the bottom line for the employee, and as an HR professional, that’s always the top priority.

Employee Payroll Taxes

When taxes are taken out of your paycheck, they are subtracted from your gross pay, and you receive what is left. The taxes that you and your employees see coming out of your paychecks include:

  • Federal income tax. Any taxes collected by the federal government based on the employee’s gross earnings, filing status and exemptions are federal income taxes.
  • State income tax. Most states require employees to pay state taxes, in the same vein as the required federal taxes.
  • Social security tax. Social security taxes fund retirement and disability benefits.
  • Medicare tax. This tax provides medical benefits to employees once they hit a certain age, so all employees are required to pay into this while they are working.

All of these affect the check your employee receives as take-home pay.

Employer Payroll Taxes

As an employer, you are also required to pay Medicare, Social Security, federal and state income, and state and local taxes, just as your employees do. In addition, businesses pay federal and state unemployment taxes.

Employee payroll taxes have a noticeable effect on employees’ take-home pay, while employer payroll taxes do not.

Responsibilities of HR Regarding Employee Payroll Taxes

Employee payroll taxes are required and set by law, so ensuring you’re complying correctly with those laws is imperative for mitigating risk to your organization. Here are the responsibilities to take into account as you’re facilitating employee payroll taxes.

Step 1: Obtain Necessary Forms

During your employee onboarding, you provide employees with the W-4 form provided by the IRS for the applicable year. Obtaining and updating these as they are changed is a critical responsibility. Without this form, no other steps can be completed. It’s important to note here that if employees have questions on what to withhold or what to select on the W-4, they should consult a tax professional. It’s not a risk you should take to advise employees.

Step 2: Withhold Taxes

Withholding taxes is typically done through your payroll company when you set the employee up in the system, but it’s your duty to ensure it’s done correctly. As the employer, it’s your job to withhold the income taxes the employee has designated on the W-4 form.

Step 3: Pay the Taxes

Next, it’s your job to pay the appropriate tax agency. Whether your payroll company facilitates this and pays the taxes directly to the appropriate agencies or if you’re withholding the taxes and paying on behalf of the organization, don’t forget to pay. It may be prudent to establish some reporting and reminders to ensure this step does not go by without completion, as there will be penalties to your organization for not paying payroll taxes.

Step 4: Report the Tax Owed

Lastly, some agencies require tax reports via specific forms, like Form 941 or Form 940, in order to remain in compliance. Ensure you’re filing the necessary reports for the applicable agencies as required by law.

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Questions You’ve Asked Us About Employee Payroll Taxes

When it comes to taxes, always consult the IRS.

The employee’s only responsibility is to ensure that their forms for payroll taxes are filled out appropriately. 

Shalie has over 4 years of experience working in a variety of HR positions and organizations including: working as an HR department “of one”, working with a start-up based in Europe, to working in a fully established robust USA based HR department. Shalie has experience in multiple states and countries with all aspects of the HR spectrum. She has a passion to share her knowledge and experience to benefit the HR profession!

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