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What Are ER Taxes? A Guide to Employer Taxes

As a business owner, it’s important to understand how to effectively implement employer tax procedures and maintain a successfully functioning company. This guide explains what is employer tax, provides calculation methods and reviews a few important things for you to understand about the process as an employer.
 
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What are ER taxes?

ER taxes, also called employer taxes, are taxes that are paid by employers in accordance with their employees’ gross wages and compensation. Failure to properly pay these taxes can result in legal action against the company.
 

What is included in ER taxes?

These taxes include Social Security, federal unemployment (FUTA), state unemployment (SUTA), Medicare and any additional taxes at the local level. Federal Insurance Contributions Act (FICA) is a payroll tax that’s paid by both the employer and employee and is used to fund Social Security and Medicare. The Social Security tax rate is 6.2% while Medicare is 1.45%, so the FICA rate is 7.65% for employees and 7.65% for employers.
 

How ER taxes are calculated

Here’s how to calculate employer taxes correctly:
 

  1. Social Security
  2. Federal Unemployment Tax Act (FUTA)
  3. State Unemployment Tax Act (SUTA)
  4. Medicare
  5. Add each result to get total ER taxes

1. Social Security

Social Security taxes can be calculated using the following formula:
 

Social Security = 6.2% of all wages up to $142,800 for an individual employee.
 

2. Federal Unemployment Tax Act (FUTA)  

Federal unemployment taxes can be calculated using the following formula:
 

FUTA = 6% of all wages up to $7,000.00 that are paid to an employee during each year.
 

3. State unemployment taxes (SUTA)

State unemployment taxes can be calculated using the following formula:
 

SUTA = Variable percentage of all wages up to $10,000 paid to an employee during each year.
 

4. Medicare

Medicare taxes can be calculated using the following formula: Medicare = 1.45% of all wages.
 

There’s an additional 0.9% assessed if:
 

  • Wages for married couples filing jointly exceed $250,000
  • Wages for married couples filing separately exceed $125,000
  • Wages exceed $200,000 for everyone else

5. Add each result to get total ER taxes

After applying the formula to an employee’s payroll data, add each total for Social Security, federal and state unemployment and Medicare together. The respective total of each of these taxes is the dollar amount of tax that you as an employer must pay for a particular employee.
 

Related: How to Grow Your Business
 

Brief overview of taxes only employees are responsible for

There are five taxes for which employees are responsible:
 

  1. Social Security is paid by both the employer and employee, and it’s used to support the benefits employees receive during retirement.
  2. Medicare taxes are also paid by both the employer and employee and are meant to partially cover Medicare health insurance.
  3. Federal income tax is paid solely by employees to maintain the country.
  4. State income tax is paid in all states except Florida, Texas, Alaska, Nevada Wyoming, South Dakota and Washington state.
  5. Local taxes vary and are generally used to fund education and community improvement projects.

Things to know about employer taxes as a manager

Here are some important elements to consider when completing your employer taxes:
 

Paying payroll taxes

Employers can view their role in payroll taxation as taking on two distinct responsibilities. The first component of payroll taxes that employers are responsible for completing is a deduction from an employee’s wages to go toward tax expenses. The second component an employer is responsible for is paying an amount of tax based on an employee’s salary level.
 

Depositing withheld tax dollars

An employer is responsible for deducting a portion of an employee’s wages to put toward the payment of taxes, such as Medicare and Social Security.
 

But before you can deposit withheld tax dollars, you need to identify whether your business’s accrued tax dollars make you a semiweekly or monthly depositor.
 

  • According to the IRS, if your payroll tax is less than $2,500 as of the current quarter and you didn’t accumulate taxes of $100,000 or more on a given day, wait to pay it with Form 941 (Employer’s Quarterly Federal Tax Return).
  • If payroll taxes are less than $2,500 as of the current quarter, you can choose which deposit schedule works for you, either monthly or semiweekly.
  • If payroll taxes are $50,000 or less as of the current quarter, use a monthly schedule.
  • If payroll taxes are more than $50,000 as of the current quarter, use a semiweekly schedule.

In addition to these depositing schedules, there’s another important element to depositing withheld tax dollars. If your business happens to accumulate $100,000 or more in payroll taxes, you have to deposit it within the next business day regardless of your depositing schedule.
 

Making reconciliation reports

A reconciliation report includes information from your current financial statements, such as cash flow, income statements and balance sheet data. It’s important as a business owner to monitor the current expenses that your company has incurred and to make sure that your books are balanced, meaning the money leaving your accounts matches the money coming in. This can help you identify potential errors in payroll taxes and allow for corrections to take place.
 

Related: New Employee Forms
 

ER taxes FAQs

 

When should you pay your employer taxes?

You should pay your employer taxes monthly or semiweekly. It is important that you consider the specific guidelines on how to file each form of taxation, including FUTA, SUTA, Social Security and Medicare, while also taking into consideration the number of tax dollars your business incurs as a result of your employees.
 

Are employer payroll taxes considered business expenses?

As business expenses, also called deductions, refer to the amount of money a business spends due to factors such as paying salaries or ordering supplies, payroll taxes are considered a business expense on a company’s income statement. This is because you as the employer must pay a certain amount of tax for each individual employee and their benefits.
 

What is your employer tax registration number, and where can it be found?

Your employer tax registration number, also called your employer identification number (EIN), is a way for the Internal Revenue Service to identify your business. You can find this number on your W-2 form in Box b. It should be a nine-digit number separated in the following way: NN-NNNNNNN. This is important to point out to your employees when they fill out their employee taxes as well.
 

Why do employers have to match payroll taxes?

Employers are required to withhold and match the amount of state and federal income taxes to cover short-term disability, paid family leave and unemployment benefits. Your company is responsible for paying unemployment benefits to individuals who are laid off or involuntarily terminated.

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