Payroll accounting it is important to distinguish between employee taxes which are deducted from the

employee’s gross pay and are therefore born by the employee, and employer taxes which are in addition
to the gross pay and born by the employers.
Employee TAXES
1. FICA
2. Federal income tax
3. State income tax.
4. Court ordered withholdings
5. Net pay.
Employer TAXES
The first major type of employer tax is FICA, which stands for the Federal Insurance Contributions Act,
and is a mandatory payroll tax.
FICA TAX

1. Social security
2. Medicare

Social security: The Social Security part of the FICA tax is a flat rate of 12.4% and applies to the first
$128,700 an employee earns in 2018. This tax provides monetary assistance to people who are retired,
disabled, or unable to work, and is split equally between you and your employee. You will pay 6.2% of
Social Security tax. You will also withhold 6.2% from the employee’s wages.
Medicare: The smaller portion of the FICA tax goes to Medicare and is taxed at a flat rate of 2.9%. It’s
also split between you and your employee as well. You will pay 1.45% and withhold 1.45% from your
employee’s wages.
Federal Unemployment Tax Act (FUTA):
The FUTA tax rate is 6% of the first $7,000 paid to each employee annually.
Employers who also pay their state unemployment insurance can receive a federal tax credit of up
to 5.4%, resulting in an effective FUTA tax rate of 0.6%.

State Unemployment Tax Act (SUTA):

State governments determine the state unemployment tax rate for each employer. (Some not-for-profit
organizations—such as churches without schools—may not be required to pay state unemployment
taxes.) SUTA tax rate and wage base limit varies state by state.