IRS Payroll Taxes: A Primer

Payroll taxes are taxes paid on the wages and salaries of employees. They include federal, state and local income taxes, Social Security and Medicare taxes, and unemployment taxes.  Improper processing of payroll taxes is one of the most common triggers for an IRS audit of a small business and its owners.

Payroll taxes include taxes paid by employees and by employers. Income taxes are actually paid by the employees, but employers must perform the withholding of these taxes from the employees’ paychecks. The employer must then remit the income them to the IRS and the state income tax authorities

Payroll taxes also include the Federal Social Security and Medicare taxes. These taxes are split evenly between the employer and the employee. For 2017, the federal government currently charges a 12.4% Social Security tax on annual income up to $127,200 and a 2.9% for Medicare on all wages. So, the employer and the employee each pay 6.2% for Social Security and 1.45% for Medicare. In addition, employers must also withhold an addition 0.9% Medicare tax from wages paid to an employee in excess of $200,000 per year ($250,000 for employees who are married and file taxes jointly). There is, however, no employer match for the addition 0.9% tax.

Payroll taxes also include unemployment insurance tax. Employers are responsible for paying the Federal Unemployment Tax (FUTA). In addition, most states require employers, not employees, to pay unemployment tax.

Payroll taxes apply to both full- and part-time employees, as well as seasonal employees. Small businesses often use independent contractors or “contract employees,” as they are sometimes called. It is important to remember that the IRS may classify someone who performs work for you as an employee, even if you consider that person an independent contractor.

Failure to process payroll taxes correctly and filing false payroll tax returns are considered “employment tax schemes” by the IRS. Employment Tax Schemes are a high priority item for IRS investigations. For information about how the IRS treats incorrect payroll tax processing and false payroll tax return filing, read my article, The Trust Fund Recovery Penalty and What It Means If Your Business Is Delinquent On Payroll Taxes, on this web site.

If you believe that you might be in delinquency (owe “back taxes”) on your payroll taxes, contact me at 412-920-6565 for a free consultation to discuss your concerns. You have enough to worry about as a small business owner without this type of anxiety. I would be happy to talk with you about ways to handle possible back taxes and to simplify the payroll side of your business for a more worry-free future.

If You Need Help:

Spend time on my web site to educate yourself about your rights as a taxpayer. If you need help on your specific tax issues, then give me a call at 412-920-6565. You can also email me at

I can help taxpayers with IRS problems from anywhere in the United States. I will be more than happy to schedule a consultation.

Shawn Wright

© 2017


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