Employer Payroll Taxes 101: Part 1
One of the most complicated topics for faith-based and non-profit organizations is payroll and payroll taxes. Filing payroll is a challenging task to complete, but the unfortunate reality is not handling it properly, or worse, not filing at all, can result in costly penalties. This week, we’ll cover some basics that apply to all employers, and next week we’ll discuss some issues that relate directly to faith-based and non-profits.
To begin, many factors determine if your staff should be considered independent contractors or employees, but in short, if you control the individuals who work for you, along with their working environment, they’re likely employees and you are responsible for paying them as such. Failure to comply with this tax law can be painfully costly at some point in your future.
Payroll taxes on a federal level come in three varieties:
- Income tax withholding, which is determined by the employee-prepared W-4 form and the IRS tables;
- FICA tax, which funds Social Security benefits, consisting of tax currently withheld at 4.2% on an employee’s gross pay up to $110,100 plus an employer match at 6.2% on that same amount; and
- Medicare tax, which funds that federal benefit, with a withholding rate of 1.45% on gross pay, without limit, plus the employer match at the same rate.
The taxes withheld each payday, commonly known as “trust fund” taxes, belong to the IRS as soon as they’re withheld. The employer has no right to use those funds for any purpose and must promptly pay them, along with their matching amounts, to the IRS. These taxes are paid according to a tight schedule depending on the amount accumulated each payday. Most payments are transmitted using the Electronic Filing Tax Payment System (EFTPS), rather than by check.
Each quarter, the employer prepares a Form 941 summarizing the gross payroll for that quarter, the taxes withheld and the employer taxes due, and reconciles the total to the taxes already paid through that quarter. Additionally, employers must consider if they’re obligated to withhold state or local income or wage taxes from their employees. In our home state ofFlorida, no other taxes are required to be withheld.
Next week, we’ll continue the payroll discussion and focus on a few rules and topics specifically for faith-based and non-profit organizations. If you find yourself in a sticky payroll situation or just need someone to take over that responsibility, we’re here. Contact Online Stewardship at 904-398-4747 or lynn@onlinestewardship.com
