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Payroll & Taxes

Payroll Tax Deductions: Everything Employers Need to Know

Celeste Gibson, FPC
by Celeste Gibson, FPC on December 12, 2017

payroll tax deductionsIf you handle payroll, you’ve probably heard the term “payroll tax deductions.” Payroll tax deductions include federal income tax, social security tax, medicare tax and other various state or local taxes. The law requires payroll taxes be withheld from an employee’s paycheck. Employers then remit those taxes to various tax agencies. This article is meant to help you better understand what to withhold from employee paychecks, what to do with what you collect and how to report it. Here are some examples of payroll tax deductions.

Payroll Tax Deductions

  • Federal Income Tax is taken out of each paycheck. This payroll tax deduction is a percentage is based on how much an employee makes, pay frequency, and allowances and exemptions.
  • Social Security Tax is taken out of each paycheck at 6.2% up to the annual maximum taxable earnings of $127,200 as of 2017.
  • Medicare Tax is taken out of each paycheck at 1.45% (This amount increases once certain wage limits are met).
  • Other payroll tax deductions include various state or local taxes

Employer Payroll Tax Deduction Responsibilities

As the employer, you are responsible for your employees’ payroll tax deductions even after you’ve issued paychecks. You also have your own portion to take care of. The following is a list of employer responsibilities:

  1. Deposit tax dollars withheld from the employees' paychecks
  2. Account for the payroll expenses through financial reporting
  3. File tax returns
  4. Pay the employer's share of taxes which include:
  • FICA stands for the Federal Insurance Contributions Act. The FICA tax consists of both Social Security and Medicare taxes. The employer and employee split the cost of Social Security and Medicare taxes.
  • FUTA stands for the Federal Unemployment Tax Act and imposes a federal employer tax used to help fund state workforce agencies.
  • SUTA stands for the State Unemployment Tax Act and is a form of payroll tax that all states require employers to pay for their employees.


Employers are required to report their tax obligations and make deposits in a timely manner. Employers also have requirements to file reports with various state and local agencies.

Employers report payroll by calculating gross monthly wage earnings and various payroll deductions to arrive at net pay. To calculate net pay, take the employee’s gross pay (pay rate times hours worked) and subtract statutory and voluntary payroll tax deductions. It seems simple but it’s easy to miss the small details.

At FrankCrum, we worry about all those deductions for you. We make sure the proper deductions are made from employee paychecks and all reports filed accurately and on time. For more information, give us a call at 1-800-277-1620 Ext. 4

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Celeste Gibson, FPC
Celeste Gibson, FPC

Celeste has over 15 years of experience in payroll and office management. She is the Payroll Implementation Manager at FrankCrum and oversees the team responsible for guiding new clients through the application process. Celeste and her team not only set up payrolls, they also make sure FrankCrum clients maintain compliance on the federal and state levels.