What Are Payroll Taxes?

Payroll taxes are the state and federal taxes that you, as an employer, are required to withhold and/or to pay on behalf of your employees. You are required to withhold state and federal income taxes as well as social security and Medicare taxes from your employees’ wages. You are also required to pay a matching amount of social security and Medicare taxes for your employees and to pay State and Federal unemployment tax.

Have each new employee complete IRS form W-4. You will use this form to calculate the amount of federal income tax to withhold from the employee’s wages. Most of the states have income tax structures that are based on the federal system, so you will use the W-4 to calculate the amount of state income tax to withhold as well.

Social security and Medicare taxes, also known as FICA taxes must be withheld from your employees’ wages. As an employer, you must also pay a matching amount of FICA taxes for your employees. Currently the social security tax rate is 6.2%. You are required to withhold 6.2% of an employee’s wages for social security taxes and to pay a matching amount in social security taxes until the employee reaches the wage base for the year. The wage base for social security tax is $97,500 for the year 2007. Once that amount is earned, neither the employee or the employer owes any social security tax.

The Medicare tax rate is 2.9% for the employee and the employer. You will withhold 1.45% of an employee’s wages and pay a matching amount for Medicare tax. There is no wage base for the Medicare portion of the FICA tax. Both the employer and the employee continue to pay Medicare tax, no matter how much is earned.

The employer also must pay State and Federal Unemployment Taxes (SUTA and FUTA). The FUTA rate is 6.2 %, but you can take a credit of up to 5.4% for SUTA taxes that you pay. If you are eligible for the maximum credit your FUTA rate will be 0.8%. The wage base for FUTA is $7,000. You will stop paying FUTA for each employee once his or her wages exceed $7,000 for the year. You will need to check with your state about SUTA tax rates and the wage base. Generally, your SUTA tax rate is based on the amount of unemployment claims that are filed by employees that you have terminated. When your business is new, your SUTA tax rate starts at the maximum and declines if you build a history of few claims.

For information on Federal payroll tax requirements, check out IRS publication 15, Circular E.

SUTA

About State Unemployment Taxes (SUTA)

In every state in the USA employers are required to pay state unemployment taxes, commonly referred to as SUTA. SUTA tax rates and caps are usually different in each state where you have employees. Costs are charged to employers and NOT to employees. Tax amounts are calculated for each employee based on the actual wages paid to the employee and the unemployment experience rate of the company. Taxes due for each employee are usually capped at a max wage amount called the cutoff amount. Each state has different SUTA cutoff thresholds. In addition, each state has differing minimum and maximum rates. For new business (businesses without any experience rate) a default rate is established and it also varies by state. Taxes must be reported and paid on a 940 or 941 form (quarterly) and many states now require the employee level wage and tax reports to be submitted on magnetic media (like diskettes or CDs).

Reporting Requirements

Employers are required to submit a complete Quarterly Tax Return each quarter. The due dates for filing quarterly reports are as follows:

First quarter – April 30
Second quarter – July 31
Third quarter – October 31
Fourth quarter – January 31

Should you need to file prior to receiving an employer account number, please complete the Quarterly Tax Return (JFS-20125) when due. When completing the Quarterly Tax Return (JFS-20125), please use a tentative contribution rate of 2.7%. When a contribution rate is officially determined for your enterprise, you will be notified by mail. If the contribution rate assigned to your enterprise is different than the tentative rate, we will contact you regarding any necessary adjustments.

Additional information about the Ohio Unemployment Compensation Tax can be obtained from our home page or by contacting the Bureau of UC Tax at (614) 466-2319.

State State Minimum Rate Maximum Rate No SUTA Experience
(New Business or unrated)
Wages Subject to Tax
(Cutoff)
Ohio OH 0.30% 9.20% 2.70%- Standard 5.00%- For construction $9000

SUTA Due Dates

Quarterly reports must be filed no later than the last day of the first month following the close of the calendar quarter being reported. In Ohio, the postmark date is considered the date of filing.

If the due date falls on a Saturday, Sunday, or holiday, the report must be postmarked by the next business day. We encourage you to mail your reports at least a few days early to avoid late filing penalties.

If the pre-printed form is lost or damaged, you may request a replacement from ODJFS, Contribution Section, PO Box 182404, Columbus, Ohio 43218-2404, or by calling the Contribution Section at 614-466-2319. If time is of the essence, please call to receive instructions for filing without the form.

For those employers with more than 15 employees, copies can be made of the Wage Detail page of the Quarterly Tax Return to use as supplemental pages.

If you are an employer with an active employer account with ODJFS, you may file electronically at the Ohio Business Gateway

SUTA – NON-PROFIT

Reimbursing employers (non-profit and public employers) must file the Wage Detail section. The Unemployment Compensation Quarterly Tax Return [Reimbursing] (JFS-20126) is used by reimbursing employers.

FUTA

Federal Unemployment Tax Act

The Federal Unemployment Tax Act (FUTA), authorizes the Internal Revenue Service to collect a federal employer tax used to fund state workforce agencies. Employers pay this tax annually by filing IRS Form 940. FUTA covers the costs of administering the UI and Job Service programs in all states. In addition, FUTA pays one-half of the cost of extended unemployment benefits (during periods of high unemployment) and provides for a fund from which states may borrow, if necessary, to pay benefits.

Federal Tax Rate

The FUTA (Federal Unemployment Tax Act) tax rate is 6.2% of taxable wages. FUTA tax is a payroll or employment tax paid solely by the employer. While the FUTA tax is paid by the employer, it is based on each employee’s wages or salary. The taxable wage base is the first $7,000 paid in wages to each employee during a calendar year. Employers who pay the state unemployment tax, on a timely basis, will receive an offset credit of up to 5.4% regardless of the rate of tax they pay the state. Therefore, the net FUTA tax rate is generally 0.8% (6.2% – 5.4%), for a maximum FUTA tax of $56.00 per employee, per year (.008 X $7,000. = $56.00).

Under double-entry accounting, the FUTA tax will result in 1) a liability, and 2) a cost that is immediately expensed or assigned as a product cost. (The cost of the FUTA tax on employees involved in manufacturing activities will be assigned to products. The cost of the FUTA tax on employees in the selling and administrative activities should be expensed with their salaries and wages as selling and administrative expense.)

Various Tax Forms:

Form 940 – (FUTA) Employer’s Annual Federal Unemployment Tax Return

Form 941 – Employer’s Quarterly Federal Tax Return

Form 944 – Employer’s Annual Federal Tax Return

Form I-9 Employment Eligibility Verification

Form W-4 Employee’s Withholding Allowance Certificate

Form BR-25 City Income Tax Return For Businesses

Form IT-11 Employer’s Quarterly Return of City Tax Withheld

Form IT-15 Employer’s Semi-Monthly or Monthly Deposit