What is Employment Tax?

Hello and welcome to our new blog mini-series discussing all things Employment Tax! In this blog post, we’ll be getting back to the basics to talk about what Employment Tax is. We wanted to start with the foundation, so business owners across the country can have a better understanding of Employment Tax, how it affects their business and what they can do if they’re ever in need of Employment Tax relief options. 

We’ll also discuss what the differences are between Employment Tax and Payroll Tax. The differences are more technical than significant, and the two can sometimes be used interchangeably, but in case someone really wants to know their stuff, we’re happy to provide the information! So feel free to subscribe below or like us on Facebook to stay up to date on our future blog posts.

Employment Tax: What is it?

Employment Tax, along with Payroll Tax, are the taxes that businesses are required to pay directly to the Internal Revenue Service (IRS). However, what they encompass, how and when you pay them, and how you file the two are slightly different.

Employment Tax

Employment taxes are all the taxes a business is required to pay that are associated with their employees. These taxes are Federal Unemployment Tax Act (FUTA) taxes and Unemployment Insurance taxes (commonly referred to as Unemployment Taxes), Federal Insurance Contribution Act (FICA) taxes, additional Medicare taxes, Workers Compensation Benefit Funds, Federal Income Taxes, and Payroll Taxes.

Payroll Taxes

Payroll taxes include local payroll taxes, imposed by some cities, but mainly comprise of the Medicare and Social Security taxes that a business is required to withhold from employees and match.

As mentioned above, in the grand scheme of things, the differences between Payroll Taxes and Employment Taxes are fairly small, so it’s easier to think of them in one lump sum, rather than in two different arenas, since they both correlate to taxes that businesses are required to pay to the IRS as a result of having employees. The IRS itself hardly even uses the term Payroll Taxes, except for situations when it applies to Form 941, which is the Employer’s Quarterly Tax Return Form. This is the form your business is required to file quarterly to report to the IRS the taxes your business has withheld from employees and matched.

Employment Tax Summary

• Employment taxes are the taxes businesses are required to pay to the IRS as a result of having employees.

• Employment taxes include: FUTA, FICA, Unemployment Insurance, Workers Compensation Benefit Funds, Federal Income Taxes and Payroll Taxes like Medicare and Social Security Withholdings.

Self-Employment Tax

In our next blog post, Employment Tax: What is Self-Employment Tax?, we’ll discuss Self-Employment Tax and then, in the following post, Employment Tax: Issues and Relief, we’ll begin to look into Employment Tax issue relief options.