Payroll taxes can seem overwhelming because of the complexity of each filing agency. Below is a simple guideline to understanding the basics of payroll taxes.
An employer that process payroll for their employees enters into a fiduciary relationship between the taxing entity and the employee. The employer withholds payroll taxes in trust that they will remit the payroll taxes to the appropriate entity. Along withholding the employee portion of payroll taxes in trust, the employer also holds the company portion of the payroll taxes in trust to remit to the appropriate taxing agency.
Federal Payroll Taxes (Employee and Employer Tax)
- Federal Income Tax Withholding (employee tax) is the potion of an employee wages that the employer will withhold from their payroll check to remit to the Internal Revenue Service. The amount of this withholding is determined by the employee filing status elections on their W4.
- Social Security Tax (employee and employer tax) is withheld from the employee paycheck at 6.2% of taxable wages. The employer will also remit as a company expense a matching 6.2% of taxable wages. For 2022, the maximum wages taxed are $147,000.
- Medicare Tax (employee and employer tax) is withheld from the employee paycheck at 1.45% of taxable wages. The employer will also remit as a company expense a matching 1.45% of taxable wages.
These federal income tax withholding, social security tax and Medicare tax are remitted on a deposited frequency determined by the total tax liability on the lookback period. The frequency are monthly, semi-weekly, and next day deposits. These taxes are remitted through the EFTPS system or by your payroll provider.
State Payroll Taxes (Employee Tax)
State withholding payroll taxes from an employee’s payroll check are remitted to the state on the frequency rate determined by the state. Kentucky state withholdings are due either monthly, quarterly or yearly dependent on your tax liability. The payments are made with the filing of your K-1 through the Kentucky One Stop Portal.
Local Payroll Taxes (Employee Tax)
Often referred to as occupational taxes, the various local entities will require withholding payroll taxes from an employee pay and remitting to the local entity. In the state of Kentucky, the frequency of filing is usually quarterly through an occupational tax form.
Federal Unemployment (Employer Tax)
The federal unemployment is remitted on a frequency determined by the IRS. With the majority of entities reporting on a yearly basis with yearly payments. The frequency may change dependent on your tax liability. A form 940 is filed annually to report the taxes and related tax deposits that have been made. The tax rate is 0.6% on wages per employee up to $7,000 for tax year 2022.
State Unemployment (Employer Tax)
State Unemployment in Kentucky is a quarterly filing on a form UI-3 remitted and filed on the Kentucky’s Electronic Workplace for Employment Services (KEWES). The rate for the employer is determined by the employer’s business sector and incident rate. The max wage limit per employee is $11,100.