Understanding Employer's Responsibilities
For Employee Taxes

00:00:00 Hi, it's Dr. Weitz. Thanks so much for joining me for this episode of the Private Medical Practice Academy. As an employee, we're all too aware of what taxes are being withheld from our paychecks, but being the employer brings on a whole new understanding of employee taxes. I remember how shocked I was by the employer's responsibilities for the employee taxes when I first started out.

00:00:27 In this episode, I'm gonna cover the four main types of employee taxes that you are responsible for, payroll, tax, fica, futa, and suda. Don't worry, I'll give you all the details about each one of these. As an employer, you have certain responsibilities when it comes to employee taxes. One of these is making sure that you adequately withhold taxes from your employees paychecks and then remit them to the appropriate tax agency.

00:01:02 So what are the employee taxes? Well, employee taxes are the taxes that are deducted from the employee's paycheck. These taxes include federal income tax, state income tax, if applicable, meaning that you live in a state that has state income tax, social security tax, and Medicare tax. As the employer, you are responsible for withholding these taxes from your employee's paycheck and then sending them to the appropriate tax agencies.

00:35:01 Even though as an employer you're only responsible for a portion of these taxes, you are entirely responsible for submitting the taxes. So how do you get the information? As the employer, you use the information that your employees provide on their W four forms when they first come to work, for you to calculate their federal income tax withholding. The employer also uses the employee's gross wages and the Medicare and social Security tax rates to calculate those taxes.

00:02:10 Obviously, state income tax withholding is based on your state's tax rates. Federal income tax, social security tax, and Medicare tax have to be sent to the I R S quarterly or monthly, depending on your payroll size. State income tax and state unemployment taxes are typically due either quarterly or annually. Again, depends on your location. Failing to withhold or to send in the employee taxes can expose you to penalties and interest charges from the IRS and state tax agencies.

00:02:46 Wanna talk about fica, I'm sure you've all heard about fica. FICA stands for the Federal Insurance Contributions Act. It's the tax that funds Social Security and Medicare, and it is paid by both the employer and the employee. So FICA taxes are calculated as a percentage of an employee's gross pay. Currently, the social security tax rate is 6.2%, and the Medicare tax rate is 1.45%

00:03:18 for both the employer and the employee. That means as the employer, you're responsible for 7.65% of your employee's gross wage above and beyond their salary, and then of course, they're responsible for the other 7.65% that comes out of their salary. I want you to actually think about this for a second because it's important to recognize that when you're offering somebody a salary,

00:03:47 there's all of this additional expense that you have to calculate, and so when you're looking at what is my total cost for that employee, remember to include the portion that you have to pay. If you're self-employed, you're required to pay both the employee and the employer portions, which means that the FICA tax rate is actually 15.3%. Employers are responsible for withholding the employee's share of FICA taxes from their paycheck,

00:04:17 and then sending both the employer and the employee portions to the I R S. The next type of tax that I wanna talk about is the Federal Unemployment Tax Act or futa. This is a federal tax paid by employers to fund state unemployment programs. You're responsible for paying on the first $7,000 of each employee's gross pay for that year. That means that the maximum amount of food a taxed per employee is $420 per year.

00:04:52 Basically, the food tax rate is 6%. However, you can get a credit of up to 5.4% if you pay state unemployment taxes on time and in full. As an employer, you're responsible for paying food taxes on a quarterly basis. You have to calculate your food tax liability based on your payroll, and then pay the IRS before the last day of the month.

00:05:18 Following the end of each quarter, you also have to file a Form nine 40, which is the annual report of food tax liabilities and payments. Failure to pay food taxes, again, can give you heartburn in terms of IRS penalties, interest charges, and potentially the loss of eligibility for state unemployment programs for both you and your employees, and I wanna talk about state unemployment tax,

00:05:48 otherwise known as suda. Understand that Fuda is the federal, Suda is the state. Suta is a state tax paid by employers to fund your state's unemployment programs. Suta taxes are calculated based on the employer's payroll and the number of unemployment claims filed by former employees. The tax rate for PSDA varies by state, but also varies depending on you and your experience.

00:06:22 Rating, meaning the employer's experience rating. An experience rating is the calculation that takes into an account. The employer's unemployment claim history. Employers with a high number of unemployment claims have a higher suit of tax rate than employers with a low number of claims. This is why it's incredibly important for you to actively manage your staff. If you are having issues instead of just arbitrarily firing somebody so that they can file a claim against you,

00:06:56 you're going to wanna make sure that you have all of your documentation to justify why that person was terminated. It will make it much harder for them to actually have an unemployment claim. Similarly, if somebody quits, you wanna make sure that is adequately documented because that also is not going to allow them to file an unemployment claim. So long story short, you need to actively be managing your staff and any terminations so that you minimize the number of unemployment claims against you.

00:07:31 Pseudo taxes are paid on a quarterly basis. As the employer, you must calculate your pseudo tax liability based on your payroll and pay that tax before the end of the quarter. Again, I wanna stress to you a, a high number of unemployment claims usually results in higher p suta tax rates. This is something that you actually control. You may also be subject to additional penalties and fees.

00:07:58 If you don't adequately contest or properly contest unemployment claims, or you fail to comply with state unemployment laws and regulations. I've said it before, I'm gonna say it 10 more times. This is where exceptional documentation is required when an employee is terminated with or without cause, or if they quit as an employer. Getting the taxes right is obviously very important. Not to mention time consuming and complicated since you have to meticulously follow these rules.

00:08:32 There are numerous options for making your life easier and keeping you in compliance today. There are countless payroll software solutions. You can outsource your human resources, including taxes and payroll, to either an HR firm or to your cpa. Now, of course, you can also have a practice manager do it for you, or you can do it yourself. Honestly,

00:08:56 that would not be my preferred route because this is very complicated and the cost of making a mistake is not insignificant. You will really want to consult somebody who is a tax expert or who has experience in handling payroll taxes in order to manage this for you. Please be sure to sign up from my newsletter below. I'll be sending you tips on how to start a practice,

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