Employer Withholding Requirements - Explained
FICA, Self-Employment, SUTA, FUTA, and Worker's Compensation
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Table of ContentsWhat are Employer Withholding Requirements?What are Income Taxes?What are Payroll Taxes? What are Federal Unemployment Tax Act (FUTA) & State Unemployment Tax Act (SUTA)? What is Worker's Compensation? Discussion QuestionPractice QuestionAcademic Research
What are Employer Withholding Requirements?
Employers are obligated to comply with state and Federal statutes and IRS and state tax authority regulations regarding the withholding of Income Taxes, Payroll Taxes, and Federal Unemployment Tax Act (FUTA) / State Unemployment Tax Act (SUTA), and Workers Compensation
Next Article: Fair Labor Standards Act (FLSA) Back to: EMPLOYMENT LAWS
What are Income Taxes?
Employers have an obligation to withhold income taxes from employee compensation based upon an employee's election. The employer then submits the withheld funds to the IRS and state taxing authority on behalf of the employee each month.
Note: The employee elects an amount to be withheld on IRS form W-4. This is done by indicating the number of employee claimed dependents and indicating any desire for additional withholdings.
What are Payroll Taxes?
Employers are required to withhold Medicare and Social Security taxes from the employee's salary pursuant to the Federal Income Contributions Act (FICA). The employer combines these withheld funds with the employer's FICA tax obligations for the employee and submits the funds to the IRS each month.
Note: Self-employed individuals must withhold self-employment taxes, which consist of the employer's contribution and employee's FICA tax responsibilities.
What are Federal Unemployment Tax Act (FUTA) & State Unemployment Tax Act (SUTA)?
Employers are required by state and federal law to pay for unemployment insurance to cover events in which an employee loses her employment for any covered reason. FUTA is common to all employers across the United States. SUTA varies among the states. Some states allow an employer to be self-insured; while other states require employers to pay into a private or state-funded insurance plan or policy.
Note: FUTA and SUTA taxes do not apply to self-employed individuals.
What is Worker's Compensation?
Workers Compensation is a state law regime that requires employers to maintain insurance that provides wage and benefit replacement in the event an employee is injured in the scope of her employment. Federal workers compensation laws, primarily the Federal Employee Compensation Act, provide the same protections to federal, non-military employees. Workers compensation covers lost wages, medical expenses, disability payments, and costs associated with rehabilitation and retraining.
Note: Application of workers compensation laws varies from state to state based upon the number of employees. Also, states may offer state-provided plans or allow for private workers compensation plans.
- What are the major employment laws?
- What are the taxation requirements imposed upon employers?
- What is the Fair Labor Standards Act (FLSA)?
- Family Medical Leave Act (FMLA)?
- Worker Adjustment and Retraining Act (WARN Act)?
- Occupational Safety and Health Act (OSHA)?
- Employee Retirement Income Security Act (ERISA)?
- Consolidated Omnibus Budget Reconciliation Act (COBRA)?
- Health Insurance Portability and Accountability Act (HIPAA)
- Workers Compensation Laws?
- Employment Verification Laws?
- Workplace Privacy Laws?
Why do you think state and federal governments have the obligation to withhold taxes from employee compensation? Do you agree with this system? Why or why not? What are the advantages and disadvantages of this type of system?
Isabelle starts a business and hires her first employee. What are her obligations under state and federal law with regard to withholding from her employees compensation.