When you’re an employee, you don’t need to spare too much thought on paying your taxes each pay period, but for employers, this couldn’t be further from the truth.

Navigating the complicated payroll tax system can be a tall order for even the best-equipped HR departments, but failing to follow the requirements correctly can result in a hefty fine from the IRS. Here’s what you should know about the payroll tax process.

The Payroll Tax Process

Before writing their employees’ checks, employers must consider five major types of taxes:

  • Federal Income Tax: Every citizen must pay federal income tax as determined by their income. This money is deposited to the IRS by the employer.
  • State Income Tax: States set their own rules for income taxes. Employers need to know the proper tax rate for each state where they have employees. This can become complicated for remote employees who may live in a different state than the company is based in.
  • Local Taxes: Some cities, counties, or municipalities may have taxes that employers also need to deduct from their employees’ paychecks.
  • Social Security Tax: Both the employer and the employee must pay this tax in order to fund Social Security programs. This tax is a big one, making up 6.2% of the Federal Insurance Contributions Act, or FICA.
  • Medicare Tax: This tax goes to pay for health benefits under the federal Medicare program. A portion of an employee’s income must be deducted to pay this tax, and employers also have to pay.

For each of these types of taxes, the employer is responsible for calculating the proper tax amount and making deductions from employee paychecks. Even after the ink is dry on an employee’s carefully tabulated checks, the employer’s work is still not done. Employers must report their taxes on a variety of different tax forms and send the money to the appropriate agency. All of this must then be tracked for the employees’ W-2 forms at the end of the year.

Managing Payroll Taxes

Evading employment taxes is a federal crime, punishable by both civil and criminal sanctions. Employees can also suffer from unpaid taxes by becoming ineligible for federal benefits, like Social Security or Medicare. Unintentional mistakes or poor record keeping don’t excuse employers from penalties for unpaid taxes, which is why it’s so important to have tax experts available to manage payroll tax.

Many companies have entire HR departments dedicated to payroll taxes, but this can be a major burden for an HR department. For most businesses—both large and small—it is more efficient and cost effective to hire a payroll tax consultant or to outsource payroll taxes entirely. These services ensure 100% accuracy on payroll taxes, allowing companies to avoid penalties and keep employees focused on other aspects of the business.

To learn more about how LBMC Employment Partners can help your company with payroll taxes, contact us today.