Which Payroll Taxes are Paid By Employer Only?

Introduction.

Payroll taxes are a vital component of a business’s financial responsibilities, and they are typically shared between employers and employees.

These taxes fund various government programs, including Social Security, Medicare, and unemployment benefits.

However, some payroll taxes are solely the responsibility of the employer, meaning that the employer is responsible for paying the entire tax amount without deducting it from employees’ paychecks.

In this guide, we will explore the payroll taxes that are paid by employers only.

Which Payroll Taxes are Paid By Employer Only?

Payroll taxes are a vital source of government revenue that supports various social programs, including Social Security, Medicare, and unemployment benefits.

Typically, these taxes are shared between employers and employees, with both contributing a portion of the tax amount.

However, there are specific payroll taxes that employers are solely responsible for paying. These “employer-only” payroll taxes represent a unique financial responsibility for businesses and can impact their bottom line.

In this article, we will explore and demystify the payroll taxes that are paid by employers only, shedding light on their significance and implications.

1. Federal Unemployment Tax (FUTA).

One of the primary employer-only payroll taxes is the Federal Unemployment Tax Act (FUTA). FUTA is a federal tax that employers must pay to fund unemployment benefits for eligible workers who lose their jobs. Employees do not contribute to FUTA; it is entirely the employer’s responsibility.

The standard FUTA tax rate is 6% of the first $7,000 of each employee’s wages. However, employers can receive a credit of up to 5.4% for paying state unemployment taxes. Effectively, this reduces the net FUTA rate to 0.6%.

2. State Unemployment Tax (SUTA).

In addition to FUTA, employers may be required to pay State Unemployment Tax (SUTA). SUTA is a state-level tax that funds the state’s unemployment insurance program.

SUTA rates and wage bases vary by state, and the responsibility for paying these taxes rests solely with the employer.

3. State Disability Insurance (SDI).

Certain states, including California, New York, and New Jersey, require employers to pay State Disability Insurance (SDI) taxes.

SDI provides temporary disability benefits to employees who are unable to work due to non-work-related injuries or illnesses. Employees do not contribute to SDI; it is solely funded by the employer.

4. State Workers’ Compensation Premiums.

While not strictly a payroll tax, workers’ compensation premiums are another financial obligation solely borne by employers.

Workers’ compensation insurance covers employees who are injured or become ill while on the job. Employers pay premiums based on their industry, the number of employees, and the state’s regulations.

Conclusion.

Understanding which payroll taxes are paid by employers only is essential for businesses to accurately budget for their financial obligations and meet their legal responsibilities.

These employer-only payroll taxes, such as FUTA, SUTA, SDI, and workers’ compensation premiums, represent unique financial commitments that can vary from one jurisdiction to another.

By staying informed about these obligations and complying with tax regulations, businesses can effectively manage their payroll costs and ensure compliance with labour laws and regulations.