Per Diem Rates from the U.S. General Services Administration
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Rates are set by fiscal year, effective October 1 each year. Find current rates in the continental United States ("CONUS Rates").
Employer's Tax and Legal Obligations
When hiring a worker you assume tax and legal obligations. For example, social security and Medicare taxes must be withheld from each employee's gross pay, employment tax returns must be filed timely, and employment taxes must be paid to the government.
State law requires employers to carry workers' compensation insurance for employees. Workers' compensation insurance covers work-related injuries of employees. It provides wage replacement and medical benefits for an employee injured on the job.
For employment tax purposes, no distinction is made between classes of employees; hourly workers, managers, and supervisory personnel are all employees.
Officers and Directors of a Corporation:
An officer of a corporation is generally an employee. However, an officer who performs no services or only minor services, and neither receives nor is entitled to receive any pay, is not considered an employee.
A director of a corporation is not an employee with respect to services performed as a director.
Sole Proprietors and Partners:
Sole proprietors and general partners are classified as self-employed persons for federal tax purposes and not employees of the business.
Self-employed persons are not subject to any federal or state withholding taxes and do not receive Form W-2 annually. Sole proprietors report gross receipts and business expenses on Schedule C (or Schedule F for farmers). Net income or loss is carried from Schedule C to Form 1040.
Partners report income or loss on Schedule E.
Self-employment taxes (Social Security and Medicare taxes) are paid by self-employed persons and are reported on Form SE.
Withholding Taxes:
The following federal taxes are required to be withheld from an employee's gross pay:
- Federal income taxes (unless the employee chooses exempt status on Form W-4).
- Social Security Taxes
- Medicare Taxes
Social security and Medicare taxes (referred to as FICA taxes) are paid by both the employer and the employee. Each pays one-half the social security rate, 6.2% (.062) and one-half the Medicare rate, 1.45% (.0145).
Self-employed persons pay both halves of both taxes, 12.4% for social security and 2.9% for Medicare, for a total rate of 15.3%.
Social Security Annual Wages Base:
The annual wage base represents the maximum amount of earned income subject to Social Security taxes. (The IRS refers to the annual social security wages base as the contribution and benefit base.)
The annual wage base generally changes each year with changes in the national average wage index. The annual wage base for 2021 is $142,800. This means that taxable wages up to $142,800 will be subject to the 6.2% Social Security tax when calculating payroll taxes
Medicare Tax:
There is no limitation on earned income subject to Medicare tax. Every dollar of earned income, from the first dollar, is subject to Medicare tax. This has been the case since 1994.
Federal Unemployment Tax (FUTA):
FUTA (Federal Unemployment Tax Act), along with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a Federal and a state unemployment tax.
Federal unemployment taxes are an employer-only tax. Therefore, this tax is not withheld from an employee's pay. The FUTA rate is generally 0.6% (.006), which includes a credit of 5.4% of state unemployment tax you paid.
The 0.6% rate is applied only up to the first $7,000 of each employee's gross pay, or $42 maximum per employee.
Credit Reduction States:
When a state's unemployment insurance funds are depleted, the state draws (borrows) from a designated federal loan account.
If the loans are not repaid within two years, part of the 5.4% FUTA tax credit is reduced, increasing the effective FUTA tax rate for that state to repay its federal loans. This simply means, credit reduction state employers end up paying a higher FUTA tax than employers in states that are not credit reduction states.
Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return:
Form 940 is filed annually by the employer. Although Form 940 covers a calendar year, you may have to deposit your FUTA tax before you file the return (which is due by February 1, of the following year).
When You Must Deposit FUTA Taxes:
If your FUTA tax liability is MORE than $500 for the calendar year, you must deposit at least one-quarterly payment. In other words, your are only required to make a deposit if your FUTA tax liability accumulates to more than $500 (i.e. $501 or more) during any quarter.
If your FUTA tax liability is less than $500 in any quarter, you simply carry the amount over to the next quarter and add it to the FUTA liability of that quarter. Once the accumulated FUTA tax liability reaches $501 or more in any quarter, a deposit must be made. You make the deposit by the last day of the month after the end of the quarter the amount accumulated to over $500.