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Are Employers Responsible for Withholding Employee Income Taxes?

Are Employers Responsible for Withholding Employee Income Taxes?

HR compliance is an ongoing process that requires time and keen attention to detail. Whether onboarding new hires or reviewing your organization’s withholding compliance, find out what human resources pros need to know about employee income taxes.


What is a Tax Withholding?

An income tax withholding is the amount of the federal income tax that’s withdrawn from an employee’s paycheck every pay period. This sum, which is withheld by employers, is dependent on two variables: 

  1. An employee’s gross pay
  2. Additional information employees provide on Form W-4 during onboarding

Additionally, employee taxes might also be withheld from other forms of income, including pensions, bonuses, gambling winnings, and commissions. The IRS also indicates that in general, foreign persons who receive U.S. source income are subjected to a tax of 30%, also known as a Non-Resident Alien withholding.


Are Employers Responsible for Withholding Employee Income Taxes?

Yes, according to the IRS, “[e]mployers are required by law to withhold employment taxes from their employees.” This includes federal income taxes as well as Social Security and Medicare taxes, otherwise known as FICA taxes. 

The Federal Insurance Contributions Act (FICA)—a federal payroll tax—requires employers to withhold three separate taxes from the wages that are paid to employees. FICA is comprised of the following taxes:

  • A 6.2% Social Security tax
  • A 1.45% Medicare tax (the “regular” Medicare tax)
  • A 0.9% Medicare surtax when the employee earns over $200,000

The law also requires employers to pay the organization’s portion of two of these taxes:

  • A 6.2% Social Security tax
  • A 1.45% Medicare tax

FICA and income taxes are required to be paid as they’re received (instead of one lump sum at the end of the year). With this in mind, employers that willfully refuse to comply with tax laws can face criminal and civil sanctions.


What Can HR Do to Help Employees with Income Tax Withholdings?

In small businesses and organizations, responsibilities fall on HR that might not at larger companies. This can and often does include employment taxes

Consider taking the following steps to help your team with income tax withholdings:

  1. Learn the Process: The IRS hosts resources that help small employers calculate withholdings, including the Tax Withholding Assistant. However, some companies will use an automated payroll system, which calculates rates automatically. 
  2. Understand the Parameters: Employees may ask you how much they should withhold or expect to have withheld. Know that you cannot advise employees on their W-4 responses but that you can explain wage thresholds, base withholding amounts, and other basic information about how W-4s are completed. (The IRS also developed a spreadsheet that includes many of these details.) 
  3. Be Prepared for Everything Else: What if employees live in multiple states, or your organization operates in different states? Is your business an LLC or a corporation? Plan answer these questions and address these situations because they impact employer taxes and should not be overlooked. 

Additionally, BerniePortal’s YouTube series, HR Party of One, produced a video detailing other tax considerations employers should keep in mind. Watch the video here and subscribe to the channel here.

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