Federal Payroll Tax

During his/her employment at any company, an employee must contribute income taxes towards government programs such as Social Security and Medicare. Through the federal payroll tax, the employer will withhold money from the employee and pay it to the government.

Payroll taxes, also called "trust fund taxes" since they are held in trust for Social Security and the IRS, include income tax as well as moneys held for Medicare and Social Security. The Federal Insurance Contributions Act (FICA) tax is the type of payroll tax that funds Medicare and Social Security. The amount of FICA taxes withheld from employees must additionally be matched by the employer.

Currently, the amount withheld for Social Security from employee pay is 6.2%, but will return to its normal 6.2% rate in 2018. Employers must also pay 6.2%. Similarly, the current tax rate of 1.45% withheld for Medicare must also be matched by an additional 1.45%. Although Social Security taxes are capped, no such cap exists for Medicare. The amount of taxes withheld for federal income tax is determined by information provided by the employee on form W4; this information might change during the course of employment.

It is solely the employer's responsibility, not the employee's, to collect and distribute payroll taxes to the IRS. Among the additional responsibilities of the employer include correctly calculating the taxes as well as filing the payroll tax reports in a timely fashion. Federal payroll tax distribution is done either monthly or semi-weekly, depending on the amount of payroll taxes owed. A company with fewer employees is required to distribute payroll taxes monthly. Having more employees necessitates semi-weekly taxation, depending upon state laws.

The federal payroll tax is paid to the IRS primarily electronically. Large payrolls must be submitted electronically. After the taxes are submitted to the IRS, they are then distributed to the FICA Medicare and Social Security programs.

Reports of the amount of payroll taxes collected, including income taxes and FICA taxes, must be submitted quarterly to the IRS with form 941, called the "Employer's Quarterly Federal Tax Return." This form must show the precise amount of all payroll taxes collected, along with all of the moneys deposited on a monthly or semi-weekly basis.