Federal Employment Taxes
As an employer, you are responsible for several federal employment taxes. These include:
- Federal income tax withholding: You must withhold federal income tax from your employee’s paychecks and send the funds to the IRS.
- Social Security tax (FICA): You are responsible for paying a portion of the Social Security tax for each of your employees, as well as withholding a portion from their paychecks.
- Medicare tax: You must also pay and withhold a portion of the Medicare tax for each of your employees.
- Federal Unemployment Tax Act (FUTA) tax: You are responsible for paying this tax, which is used to fund state unemployment compensation programs.
- Railroad Retirement Tax Act (RRTA) tax: If you are an employer in the railroad industry, you must pay and withhold a portion of the RRTA tax.
If you fail to pay the federal taxes collected on behalf of your employees, it can result in serious consequences for your business and for you personally.
- Penalties and Interest: The IRS can assess penalties and interest on unpaid taxes, which can significantly increase the amount you owe.
- Trust Fund Recovery Penalty: If you are found to have deliberately failed to pay the taxes you collected, you may be subject to the Trust Fund Recovery Penalty (TFRP). The TFRP can be assessed against individuals who are responsible for collecting and paying employment taxes, including business owners and executives.
- Criminal Prosecution: In severe cases, failure to pay federal employment taxes can result in criminal prosecution and possible jail time.
- Civil Lawsuits: The IRS may take legal action against your business and file a civil lawsuit to collect the outstanding taxes and penalties.
- Damage to Business Reputation: Failing to pay taxes can damage your business’s reputation, making it more difficult to attract customers and employees.
It’s important to be diligent about paying the federal taxes you collect on behalf of your employees. If you are facing financial difficulties and are unable to pay your taxes, call The Law Office of Dustin Whittenburg to explore your options for resolving the situation before an IRS agent pays you a visit.
Texas-Specific Employment Taxes
In Texas, employers are responsible for several taxes on behalf of their employees, including:
- Federal income tax withholding: You must withhold federal income tax from your employees’ paychecks and send the funds to the IRS.
- Social Security tax (FICA): You are responsible for paying a portion of the Social Security tax for each of your employees, as well as withholding a portion from their paychecks.
- Medicare tax: You must also pay and withhold a portion of the Medicare tax for each of your employees.
- State Unemployment Tax (SUTA): You must pay state unemployment taxes to the Texas Workforce Commission. This tax funds the state’s unemployment compensation program.
- State Disability Insurance (SDI) tax: In Texas, this tax is not mandatory but is available for employers to pay on behalf of their employees to cover their income in the case of a non-work related injury or illness.
Unemployment taxes are not deducted from employee wages. Most employers are required to pay Unemployment Insurance ( UI ) tax under certain circumstances. The Texas Workforce Commission uses three employment categories: regular, domestic and agricultural. Employer tax liability differs for each type of employment.
The taxes support the state’s Unemployment Compensation Fund, a reserve from which unemployment benefits are paid to eligible workers who are unemployed through no fault of their own. Unemployment taxes are not deducted from employee wages.
Liable employers must register with TWC to create a tax account and in each calendar quarter, report wages paid to employees and pay taxes due. For state unemployment tax purposes, only the first $9,000 paid to an employee by an employer during a calendar year constitutes “taxable wages.”
Texas employers who do not pay a contribution on or before the date prescribed by the commission is liable to the state for interest of one and one-half percent of the contribution for each month or portion of a month that the contribution is not paid in full.
