What Are Employment Taxes?

Employment taxes, also known as payroll taxes, are the state and federal taxes that an employer is required to withhold and/or pay on behalf of their employees. These taxes fall into three categories: taxes paid solely by the employee, taxes paid by both employee and employer, and taxes paid solely by the employer.

Income Tax
Federal and state income taxes are the only taxes paid solely by the employee. How much federal income tax to withhold is calculated using the employee's Form W-4 in conjunction with the income tax withholding tables in IRS Publication 15. Most states have income tax structures similar to the federal, so the Form W-4 can be used for calculating state income tax as well.

FICA
FICA (Federal Insurance Contributions Act) tax is comprised of both Social Security and Medicare taxes. These taxes are shared equally by both employer and employee. The combined contribution equals 15.3% of the employee's income. FICA tax is paid as follows:
- Social Security (Employee pays 6.2%)
- Social Security (Employer pays 6.2%)
- Medicare (Employee pays 1.45%)
- Medicare (Employer pays 1.45%)

FUTA / SUTA
The employer is solely responsible for paying Federal and State Unemployment Taxes (FUTA and SUTA). The tax rate for FUTA is 6.2% with an available tax credit of up to 5.4% for SUTA taxes paid. Once an employee's annual wages exceed $7,000 (i.e., wage base), however, the employer no longer pays FUTA for that employee. SUTA tax rates and wage base vary from state to state, but are typically based upon the number of unemployment claims filed by employees terminated by the employer.

It is the sole responsibility of the employer to make all federal tax deposits (including income tax withheld and both the employer and employee social security and Medicare taxes), as well as, filing all associated documentation with the IRS. These documents include: