As an employer, you are responsible for collecting and remitting payroll liabilities to the IRS. These liabilities encompass the various employment taxes both from your employees and your business. Keeping track of liabilities and making accurate calculations of your employees’ take-home pay and tax withholding takes careful attention. A quality payroll software makes payroll manageable and simplified to make sure you withhold the right amount of liabilities. We will explain what deductions fall under payroll liabilities and discuss how a payroll software simplifies the payroll process.
Types of Payroll Liabilities
There are generally two types of liabilities: those paid by employers and those paid by employees. Some liabilities are optional, and some are mandatory. An employee’s pay stub reflects the amount of liabilities you, the employer, withholds from their wages or salary. For each tax season, a year-end report will indicate the total amount of liabilities that were withheld, which you and your employees will use for filing taxes. Here are the deductions that fall under each type of liability.
Employee Liabilities
- FICA: FICA taxes are mandatory and cover Social Security and Medicare benefits. Both employees and employers pay a set rate for FICA taxes out of each paycheck. Employees pay half of the FICA rate, and employers pay the other half.
- Federal and State Income Tax: These liabilities are also mandatory. At the time of their hire, employees complete a W-4 form to determine how much income tax an employer will withhold from their pay. Employers remit these tax withholdings to the IRS.
- Health Insurance: Depending on your employee’s health insurance plan, they may have deductions for their pay which go towards their healthcare premiums. These are optional deductions which the employee chooses.
- Pension Plan: Similar to healthcare deductions, pension plan contributions may also be taken out of an employee’s paycheck by their choice. Defined benefit plans involve both employer and employee contributions.
Employer Liabilities
- FICA: As mentioned in the employee liabilities section, employers pay half of the total FICA tax amount, and employees pay the other half. The current rate is 12.4%, so employers and employees each pay 6.4%.
- FUTA (Federal Unemployment Tax Act): Employers must pay FUTA taxes on the first $7,000 earned for an employee at a rate of 6%.
- SUTA (State Unemployment Tax Act): In addition to FUTA, employers also must pay a set rate for SUTA taxes. Each state has a different rate, so employers should research their state’s rate.
AMS Payroll Software Can Help Manage Liabilities
Employers must keep accurate records of payroll liabilities to ensure their employees have the right information to file their taxes and so that you can file properly for your business. The AMS Payroll Software allows you to access quarterly liabilities reports to ensure your payments to the IRS are correct and on time. Our modular software is compatible with all 50 states and supports federal payroll forms for reporting. You can access a free demo for our payroll solution and experience an improved payroll system with our services. Need additional payroll form support? Check out our W2 and 1099 forms filer.