New Changes To Payroll Taxes In 2020 To 2021
So far, 2020 has proved to be a tumultuous year, especially for business owners. When Congress passed the Coronavirus, Aid, Relief, and Economic Security Act , it allowed employers to defer the deposit and payment of the employers share of Social Security taxes from March 27, 2020, to December 31, 2020. Self-employed workers were also permitted to defer payment of certain self-employment taxes. This payroll tax deferral was put in place to help offset some of the financial burden business owners were facing when COVID-19 closed the economy.
However, this doesnt mean business owners are off the hook from paying 2020s payroll taxes. The employers share of Social Security tax must be deposited by the following dates:
- 50% of the eligible deferred amount is due and
- The remaining amount is due.
Lets say Hectors bakery was hit hard and keeping up with his share of payroll taxes would send his business under. With the CARES Act, hes eligible to defer $10,000 for the payroll tax deferral period. Then, on December 31, 2021, he will have to pay $5,000, and the remaining $5,000 by December 31, 2022.
Penalties For Late Employment Tax Payments
|16 or more days but before 10 days from the date of the first IRS notice|
|10%||Amounts that should have been deposited, but instead were paid directly to the IRS or paid with your tax return|
|15%||Amounts still unpaid more than 10 days after the date of the first IRS notice or the day you receive notice and demand for immediate payment|
What Is The Maximum Unemployment Benefit In Texas 2020
$535 per weekAmount and Duration of Unemployment Benefits in Texas As explained above, the Texas Workforce Commission determines your weekly unemployment benefit amount by dividing your earnings for the highest paid quarter of the base period by 25, up to a maximum of $535 per week. Benefits are available for up to 26 weeks.
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What Are Payroll Taxes
Payroll taxes are taxes based on salaries, wages, commissions and tips an employee makes. They are withheld from their paychecks by their employer, who then pays them to the government. Payroll taxes are used to fund social insurance programs like Social Security and Medicare and show up as FICA and MedFICA on pay stubs.
Its important not to confuse federal payroll taxes with federal and state income taxes, even though both are taken out of an employees pay. The difference between these two taxes is that payroll taxes fund specific social programs, while income taxes go to the U.S. Treasurys general funds. Additionally, every worker pays a flat payroll tax rate, while income taxes vary based on an employees earnings.
New York Payroll Tax Rate Example
New employers pay 3.13% in SUTA for employees making more than $11,100 per year. They refer to it as the Unemployment Insurance Contribution Rate . Existing employers pay between 0.06% and 7.9%. Employers with few unemployment claims may pay nearly 10 times less than those with high unemployment claims. In New York, as in most states, it pays to reduce your turnover.
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Statutory Payroll Tax Deductions
The law requires that payroll taxes must be withheld from an employee’s paycheck each pay period. Employers must then transmit these withholdings to various tax agencies. Payroll tax deductions include the following:
- Federal income tax withholding based on the withholding tables in Publication 15
- Social Security tax withholding of 6.2% in 2020 and 2021, up to the annual maximum taxable earnings or wage base of $137,700 for 2020 and $142,800 for 2021
- Medicare tax withholding of 1.45%
- Additional Medicare tax withholding of 0.9% for employees earning over $200,000
- State income tax withholding
- Various local tax withholdings, such as city, county, or school district taxes state disability or unemployment insurance
Federal Employment Tax Due Dates
If you determine your business needs to be on a monthly deposit schedule, youll need to deposit your employment payroll taxes by the 15th of the following month for which theyre due. Semi-weekly schedules require that taxes for wages paid Wednesday, Thursday, or Friday be made by the following Wednesday. For wages paid on other days of the week, tax payments should be made by the following Friday.
Semi-Weekly Deposit Schedule
|Saturday, Sunday, Monday, and/or Tuesday||Friday|
One important thing to note is that if you accumulate $100,000 or more in taxes, regardless of your deposit schedule, you must deposit the taxes by the next business day.
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Nership And Sole Proprietorship Taxes
Most Texas small businesses that are partnerships pay the franchise tax, while sole proprietorships do not. The litmus test in a partnership is whether the business is directly owned by individuals, with the business income distributed directly to those individuals. In these situations, Texas treats partnerships like sole proprietorships and does not impose the franchise tax.
In such cases, the business owners must pay federal income tax on this income but not state tax, since Texas does not tax personal income.
The majority of partnerships in Texas, including LPs and LLPs, are subject to the franchise tax.
For business owners in Texas considering forming a partnership, a qualified tax accountant can help determine how to structure the partnership for the most favorable tax treatment given the individual circumstances.
You Can Outsource Payroll Tax
Payroll tax is complex. The calculations are nitpicky and penalties are steep. Even paying payroll taxes just a day late comes with a 2% penalty on the amount due, with that penalty rising as high as 15% for past due payroll taxes.
We highly recommend outsourcing your payroll to a company like Gusto. Theyâll take the headache out of everything from paying your employees the right amount at the right time, to handling pesky withholding calculations and payroll taxes.
When it comes time to record payroll costs on your books, Bench can take care of that for you. Learn more about how we are saving small business owners hours of admin every month.
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How Your Paycheck Works: Fica Withholding
In addition to income tax withholding, the other main federal component of your paycheck withholding is for FICA taxes. FICA stands for the Federal Insurance Contributions Act. Your FICA taxes are your contribution to the Social Security and Medicare programs that youll have access to when youre a senior. Its your way of paying into the system.
FICA contributions are shared between the employee and the employer. 6.2% of each of your paychecks is withheld for Social Security taxes and your employer contributes a further 6.2%. However, the 6.2% that you pay only applies to income up to the Social Security tax cap, which for 2021 is $142,800 . Any income you earn above $142,800 doesnt have Social Security taxes withheld from it. It will still have Medicare taxes withheld, though.
There is no income limit on Medicare taxes. 1.45% of each of your paychecks is withheld for Medicare taxes and your employer contributes another 1.45%. If you make more than a certain amount, you’ll be on the hook for an extra 0.9% in Medicare taxes. Here’s a breakdown of these amounts:
- $200,000 for single filers
- $250,000 for married taxpayers filing jointly
- $125,000 for married taxpayers filing separately
Employment & Training Investment Assessment
The fifth component of your tax rate is the Employment and Training Investment Assessment . The assessment is imposed on each employer paying contributions under the Texas Unemployment Compensation Act as a separate assessment of 0.10 percent of wages paid by an employer. Money from the assessment is deposited to the credit of the employment and training investment holding fund. By law, the Replenishment Tax Rate is reduced by the same amount, so there is no increase in your tax rate due to this assessment.
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What Are State Payroll Taxes
California has four state payroll taxes which are administered by the EDD:
- Unemployment Insurance and Employment Training Tax are employer contributions.
- State Disability Insurance and Personal Income Tax are withheld from employees wages.
Wages are generally subject to all four payroll taxes. However, some types of employment are not subject to payroll taxes and PIT withholding. For more information, refer to Types of Employment .
Most employers are tax-rated employers and pay UI taxes based on their UI rate. Nonprofit and public entity employers that choose another method are known as reimbursable employers. School employers can elect to participate in the School Employees Fund, which is a special reimbursable financing method.
How Much Does An Employer Pay In Taxes For An Employee
The current tax rate for social security is 6.2% for the employer and 6.2% for the employee, or 12.4% total. The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total. Combined, the FICA tax rate is 15.3% of the employees wages. Do any of your employees make over $137,700?
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Bond Obligation Assessment Rate
The Bond Obligation Assessment Rate is determined by this formula:
x Yield Margin percentage, rounded to the nearest hundredth. The prior year rate is the sum of your 2020 General Tax, Replenishment Tax, and Deficit tax.
The Commission sets the Obligation Assessment Ratio and the Yield Margin . Those two factors are the same for all employers subject to the OA.
The 2021 Obligation Assessment Ratio is 0.00 percent.
The OA Ratio is calculated according to Commission Rule:
OA Ratio = Principle, interest and administrative expenses due in 2021 on outstanding bonds ÷ Tax due from the General and Replenishment tax rates for the four quarters ending June 30th of the previous year
The result is rounded to the next hundredth.
The 2021 Yield Margin is 0.00 percent. The Yield Margin is adopted by Commission resolution.
There is no Bond Obligation Assessment Rate for 2021.
How Can Employers Avoid Payroll Tax Penalties
Employers who proactively manage their payroll taxes are more likely to avoid penalties than those who dont. Here are some preventive tips:
- Classify employees correctlyMisclassifying employees as independent contractors to avoid paying FICA and FUTA taxes is illegal.
- Withhold and pay taxes on time Using payroll funds to pay another creditor instead of the IRS is an example of willful disregard and may result in a TFRP.
- File tax reports using the proper forms Employers must file amended returns if they make a mistake or use the wrong form.
- Stay up-to-date with tax law changes Payroll tax rates and wage base limits are subject to change by federal, state and local governments.
- Partner with a qualified payroll service providerPayroll software automates FICA calculations, deductions and payments to help ensure accuracy.
Family Caregivers And Self
Special rules apply to workers who perform in-home services for elderly or disabled individuals . Caregivers are typically employees of the individuals for whom they provide services because they work in the homes of the elderly or disabled individuals and these individuals have the right to tell the caregivers what needs to be done. See the Family Caregivers and Self-Employment Tax page and Publication 926 for more details.
Texas Payroll Tax Resources
You now know the most important parts of implementing and managing a payroll system thats simplified for you. Its natural to need some time to start working through tax reporting more quickly, but its only a matter of time before youre feeling confident and in control.
For more information on calculating how much your employees owe in federal income taxes in Texas, take a look at the most recent edition of the IRS Publication 15-A. If youre interested in diving a bit deeper into running a business in Texas, consider reading about the best resources for business loans and financing for Texas businesses!
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Texas Payroll Tax And Registration Guide
Account Number Needed:
Companies who pay employees in Texas must register with the Texas Workforce Commission . TX also requires employers to register their payroll provider with the TWC as an to allow the provider to file and pay TX unemployment taxes.
TX Workforce Commission Account Number: 99-999999-9
- Register online with the TWC within 10 days of the first check date to receive the number immediately. Registration requires company location and Federal Employer Identification Number.
- Find an existing TWC Account Number:
- By logging in to the Unemployment Tax Services site
- By contacting the TWC via their Contact page
Though the state of Texas only requires TX employers to register within 10 days of paying $ 1500+ in a quarter, Zenefits Payroll requires companies to register for their TWC account number prior to running their first payroll. This more stringent requirement allows Zenefits Payroll to make sure that UI amounts are correct from day one.
Required Payroll Documentation:
- Not applicable
- The Texas Withholding Commission requires electronic filing of all Unemployment Taxes. Use a payroll report that contains SSN, Employee Name, Quarterly Gross Wages, Quarterly Taxable Wages, andemployer contribution amounts.
Third Party Access /POA Needed:
Cant Locate Your Twc Tax Account Number
To locate your TWC Tax Account Number:
If you are transitioning to Square Payroll from a different payroll provider , you can find your TWC Tax Account Number on any previously submitted quarterly tax filing . The TWC Tax Account Number is a nine-digit number in the following format: XX-XXXXXX-X.
If you need to update the TWC Tax Account Number we have on file for you, please contact us.
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Dont Forget To Keep Records
Its worth your time to create a system with which you can save relevant employee information and documentation. For example, youd likely want to have employee information on their earnings available if they quit or are fired. Your payroll records should include details such as:
- Full name and Social Security number of employee
- Address and ZIP code
- Total hours worked each day by employee
- Type of pay
The minimum payroll tax rate in Texas is 0.31% and the maximum rate is 6.31%.
The Texas constitution prohibits the use of personal income tax. The state of Texas relies on sales and use taxes as well as local taxes to collect its income.
Employers pay Texas Unemployment tax as part of their payroll taxes. Employers and employees pay FICA tax, and only employees pay federal income tax and Additional Medicare tax.
Texas has a lean set of payroll tax requirements and does not have any state withholding tax. Texas has the fifth-lowest overall tax burden per capita and is business-owner-friendly when it comes to reporting payroll taxes.
State Of Texas Payroll Laws & Regulations
Payroll tax laws in Texas are unique in that they only require one tax from employers at the state level: unemployment insurance . Employers, including small business owners, dont need to report state income tax on behalf of their employees and dont need to worry about reporting employee income taxes at the local level, either.
In short, the Lone Star State has some of the leanest payroll tax regulations in the country. These regulations reduce taxable income that employees need to pay and can make Texas an attractive state in which to work. While this impression largely holds true, payroll management in Texas also includes taxes at the federal level that apply to all individuals who run a business in the state.
Dont get lost in the world of Texas payroll and the long-winded calculations you still need to tackle. Refer to the following glossary of quick tax terms to guide yourself toward a flawless report of payroll withholdings and payments:
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How To Calculate Texas State Tax In 2022
Texas tax is calculated by identyfying your taxable income in Texas and then applying this against the personal income tax rates and thresholds identified in the Texas state tax tables . Please note that certain states do not collect State Income tax, these include Alaska, Florida, Nevada, South Dakota, Washington and Wyoming.
Taxable Income in Texas is calculated by subtracting your tax deductions from your gross income. Incredibly, a lot of people fail to allow for the income tax deductions when completing their annual tax return inTexas, the net effect for those individuals is a higher state income tax bill in Texas and a higher Federal tax bill. So why do people choose not to claim income tax deductions in Texas? The sad truth is that a lot of people fear making a mistake on their Texas tax return and subsequently facing fines and issue with the IRS and or Texas State Government tax administration. Clearly, declaiming deductions can really reduce your tax bill in Texas but this is a personal choice, itemised deductions for the combined Federal and Texas State tax return include Office expenses, Property Maintenance and Repairs, certain trades and jobs are provided special allowances. A full list of tax exemptions and elements which can be claimed as part of an itemised Texas state tax return is available on the Texas Government website.
What Happens If I Make A Payroll Mistake
If you accidentally make a payroll mistake, you may get reported to the Department of Labor , but if it is clear that the mistake was not deliberate, they may be lenient in repercussions. Although, you will still likely have to pay back the wages, and you may get sued or fined. Checking your local laws, outsourcing, or utilizing payroll software will help ensure compliance. It is also possible that your employee comes to you first, having noticed the mistake and allowing you an opportunity to check and correct the paycheck.
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