What Federal Taxes do you File for Hourly Workers?

As business owners, navigating taxes is incredibly confusing. It is the employer's duty to deposit, report and pay the employment taxes by the respective due dates. If you find yourself struggling, you aren't alone. Workstream is here to help!

All employers should be aware that there are different types of federal-level taxes: 

1. Federal income tax
2. Social security and Medicare taxes
3. Additional Medicare tax
4. Federal Unemployment tax (FUTA)

Before delving into what each tax mean for your business, remember to submit the following 2 forms before the end of January every year to the Social Security Administration (SSA) in order to report the salary, wages, tips or any other forms of compensation paid to an employee.

1. W-3 Form, Transmittal of Wage and Tax Statements
2. W-2 Form, Wage and Tax Statement

1. Federal Income Tax

The federal taxes for workers fall under the IRS's oversight. All the employers are responsible for withholding taxes from their employees' pay checks. According to the IRS, in order to know how much tax to retain, employers should check the  W-4 Form along with the withholding tables in Publication 15, Employer's Tax Guide. 

2. Social Security and Medicare Taxes

The Social Security Tax applies to both employers and employees. It is used to fund the Social Security and Medicare programs and are collected as a form of payroll form tax as mandated by the Federal Insurance Contributions Act (FICA). It was announced that for 2019, the Social Security tax rate has a base limit of $132,900 and the tax rate is 6.2% for both employee and employer. The Medicare program has no wage limit and the tax rate is 1.45% for both employees and employers. Check the employee’s W-4 Form to determine the correct amount you need to withhold.

3. Additional Medicare Tax

All employers are required to withhold the additional medicare tax of 0.9% on all the employment income higher than of $200,000 in a calendar year. The additional medicare taxes are reported quarterly by using the IRS Form 941.

4. Federal Unemployment Tax (FUTA)

It is the employer’s responsibility to pay the Federal Unemployment Tax (FUTA) as it will not be withheld from the employee pay check. To file your FUTA taxes, you will need to fill the Employer’s Annual Federal Unemployment (FUTA) Tax Return, Form 940. Don't forget to send it to the IRS before 31st January of every year.