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Payroll Taxes LifeBack Tax
For a business owner, one of the most challenging obstacles can be dealing with federal and state payroll taxes. Aside from the income tax, employers are also responsible for depositing Social Security, Medicare, and unemployment insurance taxes for each employee. Unlike income tax, unpaid payroll taxes cannot be discharged in bankruptcy.
All employers and employees are required to pay federal taxes on Social Security and Medicare, collectively called FICA (Federal Insurance Contribution Act) taxes. Just as with income tax, an employer withholds these taxes from each employee's pay. However, only half of FICA taxes are collected from the employee; the other half is paid by the employer. Self-employed individuals must also pay Social Security and Medicare taxes on their income.
Social Security tax is calculated at 12.4 percent of an employee's income, with 6.2 percent withheld from the employee's pay and 6.2 percent paid by the employer. However, the amount of income taxable for Social Security purposes is capped by a wage base, which is set at $132,900 for 2019. This means that regardless of how much income a employee earns in 2019, they will not pay more than $8,239.80 (1.45 percent of the wage base) in Social Security tax in 2019.
Similarly, Medicare is calculated at 2.9 percent of the employee's income, with 1.45 percent withheld from the employee's pay and 1.45 percent paid by the employer. Unlike Social Security, Medicare tax does not have a wage base cap. In fact, if an employee's earnings exceeds a threshold of $200,000, an additional 0.9 percent Medicare tax must be withheld from their pay. The employer is not required to pay additional Medicare tax.
Employers must also deposit federal and state unemployment taxes for each employee, called FUTA and SUTA respectively. Federal unemployment tax (FUTA) is calculated at 6 percent of each employee's earnings, capped by a wage base of $7,000 per employee. For state unemployment tax (SUTA), each state typically assigns tax rates based on an employer's experience and number of workers who claimed unemployment benefits. Unlike FICA tax, federal and most state unemployment taxes are paid only by the employer, and are not withheld from an employee's pay.
Employers are required to deposit income and FICA tax withholdings on a monthly or semi-weekly basis, and report their withholdings each quarter. FUTA tax deposits are due each quarter and reported annually, while due dates for SUTA tax vary from state to state. An employer may also be required to withhold and deposit other state payroll taxes, such as Oregon's worker compensation or California's disability insurance coverage.
Please contact us if your business is being audited for Social Security, Medicare, unemployment insurance, or other payroll taxes. The IRS can be ruthless when collecting unpaid payroll taxes, and will not hesitate to charge penalties as high as 15 percent or file a tax lien on your business if it finds an issue. We at LifeBack Tax Relief are dedicated to defending taxpayers and small business owners from the government, and will do our best to guide you safely throughout the audit process.
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