Employer payroll taxes When companies employ workers, in addition to the cost of the employees' salaries and wages, they are responsible for employer payroll taxes. Employer payroll taxes are required to help fund governmental FICA programs and unemployment programs.
Similar to employees who have FICA taxes withheld from their gross pay, employers are also charged FICA OASDI and Medicare taxes. The tax rates and payroll limits are the same for employers and employees. For 2007, FICA OASDI taxes are 6.2% of the first $97,500 earned by each employee, while FICA Medicare taxes are 1.45% of each employee's gross pay. Based on the Nicholas Corporation's August 12 payroll register shown earlier, the company's FICA taxes for the week would total $160.65 ($130.20 FICA OASDI + $30.45 FICA Medicare). This $160.65 would be paid to the federal government at the same time it paid the $160.65 withheld from employees. Thus, the federal government will receive $321.30 from the Nicholas Corporation to help fund FICA programs.
Unemployment programs are designed to assist individuals who are out of work, but trying to
find jobs. Employers, but not employees, are charged unemployment taxes by federal and state governments. For 2007, federal unemployment taxes are 6.2% of the first $7,000 earned by each employee in 2007. State unemployment taxes vary from state to state and employer to employer. Those employers with good employment records have low state unemployment tax rates. Employers who pay the correct amount of their state unemployment taxes on time have their federal unemployment taxes rate reduced from 6.2% to .8%.
Consider the Nicholas Corporation's August 12 payroll shown earlier. Employees' gross pay totaled $2,100. Assume (1) neither employee had earned $7,000 prior to August 12, (2) the company makes state unemployment taxes payments properly, and (3) the company's state unemployment tax rate is 5.4%. The company's federal and state unemployment taxes for the week would be as follows.
Federal unemployment taxes = $2,100 x .008 = $16.80
State unemployment taxes = $2,100 x .054 = 113.40
Show the effects on the company's resources and sources of resources of the August 12 FICA and unemployment payroll taxes.