ER wage taxes refer to the portion of payroll taxes that an employer is responsible for paying on behalf of their employees. These taxes are a part of the Federal Insurance Contributions Act (FICA) and include contributions to Social Security and Medicare.
Calculation of ER Taxes
The calculation of ER wage taxes involves:
- Determining Total Wages: First, the employer calculates the total wages earned by the employee during a pay period.
- Applying Tax Rates: The current Social Security tax rate for employers is 6.2% of wages, up to the Social Security wage base. For Medicare, the rate is 1.45% of all wages, with no cap.
Required Forms and Reports for ER Wage Taxes
Employers must comply with several reporting requirements, including:
- Form W-2: Reports total annual wages and taxes withheld. Each employee receives a copy, and another is filed with the Social Security Administration.
- Form 941: A quarterly report of federal income and payroll taxes withheld, including the employer’s share of FICA taxes.
Penalty for Non-Compliance
Failure to deposit ER wage taxes on time can result in penalties ranging from 2% to 15% of the unpaid taxes, based on the duration of the delay.
Federal Unemployment Tax
The Federal Unemployment Tax (FUTA) is distinct from ER wage taxes. It is solely an employer-paid tax, used to fund unemployment benefits and not deducted from employee wages.
Example of ER Wage Tax Calculation
Imagine a company with an employee earning $50,000 annually. The employer's responsibility for ER wage taxes would be calculated as follows:
- Social Security Tax: 6.2% of $50,000, which amounts to $3,100.
- Medicare Tax: 1.45% of $50,000, equating to $725.
Thus, the total ER wage tax the employer must pay for this employee is $3,825 for the year. This example illustrates how employers contribute to FICA taxes, playing a crucial role in funding Social Security and Medicare programs.